U.S. SECURITIES AND EXCHANGE COMMISSION
                           Washington, DC 20549

                               FORM 10-KSB/A
(Mark One)
      [X]  Annual report pursuant to Section 13 or 15(d) of the Securities
           Exchange Act of 1934
               For the fiscal year ended October 31, 2003
      [ ]  Transition report under Section 13 or 15(d) of the Securities
           Exchange Act of 1934
               For the transition period from ________ to ________
      Commission file number            0-20303
                              --------------------------

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
         ---------------------------------------------------------
               (Name of small business issuer in its charter)

           Delaware                                      13-2846796
    ------------------------------------------------------------------------
 (State or other jurisdiction of                      (I.R.S. Employer
  incorporation or organization)                     Identification No.)



 4 Hardscrabble Heights, P.O. Box 382, Brewster, NY          10509
----------------------------------------------------------------------------
(Address of principal executive offices)                   (Zip Code)

                              (845) 277-8100
                   -------------------------------------
                       (Issuer's telephone number)

Securities registered under Section 12(b) of the Exchange Act:  None.
                                                                ----
Securities registered under Section 12(g) of the Exchange Act:

                           Title of Each Class
                       ---------------------------

                      Common Stock, $.0001 par value
                  --------------------------------------

     Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes     X     	No
    --------    -----------

     Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]

     State issuer's revenues for its most recent fiscal year:  $9,761,638
for the fiscal year ended October 31, 2003.

     State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which
the common equity was sold, or the average bid and asked price of such
common equity, as of a specified date within the past 60 days:  $3,987,887
as of January 20, 2004.  The aggregate market value was based upon the
closing price for the Common Stock, par value $.0001 per share, as quoted
by the NASDAQ for such date.

     (ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE PAST FIVE
YEARS)Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes           	No
   ---------    ----------

               (APPLICABLE ONLY TO CORPORATE REGISTRANTS)
     State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:  As of January 20,
2004, 2,603,453 shares of Common Stock, par value $.0001 per share.

                  DOCUMENTS INCORPORATED BY REFERENCE
     If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB (e.g., Part I, Part
II, etc.) into which the document is incorporated:  (1) any annual report
to security holders; (2) any proxy or information statement; and (3) any
prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of
1933 ("Securities Act").  None.

     Transitional Small Business Disclosure Format (check one):
Yes               No     X
   -----------       ---------

<PAGE>

          This Amendment No. 2 on Form 10-KSB/A includes restated
audited consolidated financial statements for the fiscal year ended
October 31, 2003, which supersede the Company's previously issued
audited consolidated financial statements for such fiscal year.
This Amendment No. 2 also includes related changes to the
disclosures in "Management's Discussion and Analysis or Plan of
Operation."  See Note 4 to the accompanying audited financial
statements.  Except as otherwise specifically noted, all
information contained herein is as of October 31, 2003 and does not
reflect any events or changes that have occurred subsequent to that
date.  For the convenience of readers, this Amendment No. 2
restates in its entirety the Company's Annual Report on Form 10-KSB
for the fiscal year ended October 31, 2003.



                                PART I

ITEM 1.   DESCRIPTION OF BUSINESS

OVERVIEW

          Touchstone Applied Science Associates, Inc. (the
"Company" or "TASA") now competes exclusively in the assessment
marketplace.  During the Company's fiscal year ended October 31,
2003 ("Fiscal 2003"), TASA sold both its post-secondary proprietary
school, Mildred Elley (originally acquired by TASA in fiscal 1999),
and Modern Learning Press, its supplemental instructional materials
subsidiary (originally acquired by TASA in fiscal 1997).  With the
advent of No Child Left Behind legislation ("NCLB"), the Company's
Board of Directors and management made the strategic decision to
refocus the organization on the fast-growing assessment segment of
the K-12 education market.  The net effect of this decision was
that the Company's revenue stream has decreased from $16.3 million
for the year ended October 31, 2002 ("Fiscal 2002"), to $9.8
million for Fiscal 2003 as a result of the sale of these non-
strategic businesses.  However, on a comparative basis, the
assessment revenue stream increased 29%, from $7.6 million in
Fiscal 2002 to $9.8 million in Fiscal 2003, or 29%.  Over the past
nine years, the assessment revenue stream has increased
approximately five-fold, from $2.1 million in fiscal 1994 to $9.8
million in Fiscal 2003.

          The need to develop fundamental literacy skills has long
been recognized as essential to a student's progress and success
throughout school and life.  The Company's proprietary assessment
products relate directly to the teaching and measurement of
progress of literacy skills.  The Company's Degrees of Reading
Power(r) ("DRP") tests and related products enable a school, district
or other entity to assess an individual's reading comprehension
ability.  These tests allow an individual's reading development to
be tracked over time and are often used to audit a school's success
in the teaching of reading.  In 2001, the Company launched two new
tests: Signposts, a language arts early-childhood test, and the MAC
II, an English language proficiency test, both of these tests focus
on fundamental literacy skills.

          Through the Company's wholly-owned subsidiary, Beck
Evaluation and Testing Associates, Inc. ("BETA"), the Company
performs "custom services" for other test publishers as well as for
state education agencies directly.  Again, under NCLB, the needs
for custom design test development and for consulting and
psychometric services are increasing rapidly.  BETA now accounts
for more than 50% of TASA's assessment revenues.

          The Company was incorporated in the State of New York in
1976 and, in 1991, changed its corporate domicile to Delaware.  It
became a public company in 1992.  TASA's corporate headquarters are
located at 4 Hardscrabble Heights, P.O. Box 382, Brewster, New York
10509.  The Company's telephone number is (845) 277-8100 and its
facsimile number is (845) 277-3548.  The Company maintains a
website at www.tasa.com.  Information contained on the Company's
website is not, and should not be deemed to be, incorporated into
this Report.  As used in this Report, the terms "Company" and
"TASA" refer to Touchstone Applied Science Associates, Inc. and its
subsidiaries, unless the context otherwise indicates.

          Except for historical information, the material contained
in this Description of Business is forward-looking.  For the
purposes of the safe harbor protection for forward-looking
statements provided by the Private Securities Litigation Reform Act
of 1995, readers are urged to review the list of certain important
factors set forth in "Cautionary Statement for Purposes of the
"Safe Harbor" Provisions of the Private Securities Litigation
Reform Act of 1995" below, which may cause actual results to differ
materially from those described.

          This Amendment No. 2 on Form 10-KSB/A includes restated
audited consolidated financial statements for the fiscal year ended
October 31, 2003, which supersede the Company's previously issued
audited consolidated financial statements for such fiscal year.
This Amendment No. 2 also includes related changes to the
disclosures in "Management's Discussion and Analysis or Plan of
Operation."  See Note 4 to the accompanying audited financial
statements.  Except as otherwise specifically noted, all
information contained herein is as of October 31, 2003 and does not
reflect any events or changes that have occurred subsequent to that
date.  For the convenience of readers, this Amendment No. 2
restates in its entirety the Company's Annual Report on Form 10-KSB
for the fiscal year ended October 31, 2003.

PROPRIETARY ASSESSMENT PRODUCTS AND RELATED SERVICES

          TASA designs, develops, calibrates, publishes, markets,
and sells educational reading assessment tests to elementary and
secondary schools, colleges, and universities throughout the United
States and Canada.  The Company's reading comprehension tests are
based on its proprietary Degrees of Reading Power (DRP) assessment
methodology.  DRP tests are published in three versions: Primary,
Standard, and Advanced.  The Company's products measure an
individual student's reading ability in a non-culturally biased
manner and allow tracking of an individual's reading development
over time.

          DRP TESTS.  Management believes that DRP tests are widely
          ---------
recognized as being advanced state-of-the-art in educational
assessment.  Based on descriptions contained in Tests in Print
published by the Buros Institute of Mental Measurements (which
endeavors to cover all tests published in the United States), it is
management's belief that:

          *  DRP tests were the first commercial standardized
             tests whose results can be directly interpreted with
             respect to the written materials that students can
             read; and

          *  DRP tests are the only existing instruments that can
             measure progress toward one or more standards or
             requirements that are established by examining how
             well prose in books or other sources must be
             comprehended for particular purposes.

          Consequently, the DRP tests are especially useful in
accountability assessments of a school's teaching performance and
in measuring an individual's reading level.

          DRP tests measure how well students understand the
meaning of whole text.  These tests determine, as much as is
possible in a testing situation, how well a student reads under
real-life conditions, both in and out of school. Primary and
Standard DRP tests are direct measures of fundamental reading
comprehension, defined as how well students can process text as it
is being read.  Advanced DRP tests extend this definition of
reading comprehension.  Advanced DRP test items require students to
engage higher level cognitive processes needed to think about,
analyze or evaluate propositions in text.

          DRP tests consist of nonfiction paragraphs and/or
passages on a variety of topics, each written, edited, and
calibrated by the Company.  The individual test passages are stored
in the Company's "Test Passage Bank", and each test is created by
selecting the appropriate test passages from the Test Passage Bank
to satisfy the criteria set for a particular test.  Each passage
undergoes a two-year process of development and calibration and has
an estimated useful life of 11 years; a passage is introduced
initially in a "secure" form of test after which it is available in
"shelf" form in the Company's test catalogs and then in practice
tests.  Management believes that approximately four million DRP
tests, for which the Company is the sole source proprietor and
publisher, were administered in 2002 in states, school districts,
and college and university testing programs.

          TYPES OF DRP TESTS.  Specially prepared "secure" forms of
          ------------------
the Company's DRP tests are licensed for one-time or limited use by
states while other "shelf" forms listed in the Company's catalogs
are licensed for an indefinite period of time to schools and
districts throughout the United States and Canada.  Secure test
forms are composed of text and test items that have never before
been administered and are typically used in only one test
administration as a secure test.  The Company provides secure tests
annually for administration in certain grades in Connecticut and
New York.

          Further, with the advent of the new education act, NCLB,
the DRP shelf tests are being added to testing programs in a number
of states, most noticeably Alabama, Massachusetts and Utah.  DRP
tests have been administered in approximately 4,000 school
districts across the United States.

          THE MACULAITIS TEST.  In Fiscal 1997, TASA acquired the
          -------------------
Maculaitis Assessment of Competencies test (the "Maculaitis Test"),
which is a comprehensive English language assessment and evaluation
program.  It is intended for use in ESL, Bilingual Education and
Limited English Proficiency ("LEP") programs. From 1999 through
2001, the Company made substantive revisions, including renorming,
to enhance the test's marketability. Management believes that these
revisions have given the Maculaitis Test wider appeal, at a time
when $750 million of funding is available under Title III of NCLB.
The new MAC II was launched at the end of the third quarter of
Fiscal 2001.

          The MAC II is currently authorized for use in New Jersey,
Illinois, Florida and Wisconsin.  It is the mandated state ESL/LEP
test in Rhode Island and Missouri.  In spring 2004, MAC II will be
used as a statewide assessment in Arkansas.  This test is currently
a finalist for adoption in several other states.

          SIGNPOSTS(R) EARLY LITERACY ASSESSMENT SYSTEM.  In the
          ---------------------------------------------
spring of 2001, the Company introduced the first phase of its new
Signposts(r) Early Literacy Assessment System ("Signposts").
Signposts is a comprehensive system designed to provide a unique
set of assessments and integrated instructional activities for
students in grades K-3.  Signposts spans a range of literacy
strands-reading, writing, listening, and speaking-and includes a
pre-DRP reading test and measurement scale for emergent readers.
Management believes that the pre-DRP test's downward extension of
the existing Primary DRP test will help both the Signposts and DRP
programs in future adoptions.  Again, the Company is seeing
significant interest due to NCLB.

          TEST SCORING AND RELATED REPORTING SERVICES.  The Company
          -------------------------------------------
provides scanning, scoring, and reporting services for all of its
tests to schools and districts.  Company-copyrighted test answer
sheets or licensed answer sheets are required for the
administration of all of the Company's tests.  Answer marks on
these sheets are machine-read by scanner-computer systems and
interpreted by Company-proprietary scoring and reporting software.
Company-copyrighted conversion tables are used to convert the total
number of right answers into a DRP score that indicates how well a
student can comprehend text of a given difficulty (readability), or
into MAC II scores and English Competency Levels.  The test scores
also can be interpreted normatively (i.e., in terms of national
percentile norms that indicate a student's percentile rank in
relation to students nationally in his or her grade) using the
Company's proprietary data.  All District, School and Class Level
Reports of DRP test results are copyrighted by the Company, as are
various Parent and Individual Reports that may be ordered by school
systems for inclusion in permanent records.  Third-party firms, as
well as state agencies that provide scanning and scoring services
to schools, also may be licensed to score the Company's tests.

          In Fiscal 2003, the Company quadrupled the capacity of
its scoring facility.  The Company now performs scoring services
also for our custom testing unit and for third parties.

          SOFTWARE PRODUCTS.  The Company designs and markets
          -----------------
computer software products that are sold as instructional aids or
analytical tools for reading assessment.  Among the products are
MicRA-->DRP II, which allows the user to estimate the DRP
difficulty rating of instructional materials, and DRP-->EZ
Converter(r), which permits those who score DRP tests by hand to
easily convert raw scores to criterion-referenced DRP scores and
DRP norms. In Fall 2002, the Company released MACII-->EZ Converter
software which permits those who score MAC II tests by hand to
easily obtain MAC II scores and norms.  Further, the Company has
sold its own proprietary scanning and scoring software to school
districts where its installation is economically feasible due to
high-volume usage. Through the end of Fiscal 2003, we had 12
districts that had purchased this software.

          The Company has also introduced DRP-->Booklink(r) which
enables teachers to find appropriate books for each student based
upon interest categories and reading ability.  The database of
books (over 20,000) increases yearly and modifications to the
software each year make it more user friendly.

          The Company reports revenues from proprietary test
products as Proprietary Assessment Income.

CUSTOM TEST PRODUCTS AND RELATED SERVICES

          BETA provides consulting services to states, school
districts and textbook publishers. BETA's business is approximately
equally divided between work for states and work for publishers.
Since its acquisition by TASA in January 1997, BETA has
concentrated on increasing its test assessment and design services
to states.  This effort has been successful, and BETA now provides
its test design and psychometric services to state customers in
Delaware, Indiana, Massachusetts, Michigan, Minnesota, North
Carolina, Ohio, Texas, and Virginia.  BETA was awarded a $7.5
million contract from the State of Michigan to develop an
alternative assessment test for special education students.  In
January 2004, BETA was notified that such contract has been
extended through September 2007.  The total value of this contract
over its term is $13,900,000.  This represents the second major
state (the other state being Texas) where BETA has alternative
assessment assignments.

          BETA's custom assessment services are provided to states
either directly or indirectly, typically through three of the
largest commercial contractors in the contract/customized
assessment markets, NCS Pearson, Harcourt and Measurement, Inc.
Generally, the business strategy of BETA is to provide these
specialized services for the major state contracts as a
subcontractor, primarily for assessment or psychometric services
and actual test design and development.  The prime contractor
provides for all the printing, logistics, warehousing, scoring and
reporting services necessary to complete state contracts.

          The Company reports revenues from BETA's operations as
Custom Assessment Income.

DISCONTINUED OPERATIONS

          The Company has determined that its core business of
assessment products and services provides better long-term growth
and profit potential than did the instructional material business
and the proprietary school business.  Consequently, during the
second quarter of Fiscal 2002, the Company reached a decision to
sell its proprietary school, Mildred Elley Schools, Inc. ("Mildred
Elley") and the Company reached a similar decision to sell the
instructional material business in the third quarter of Fiscal 2003.

          Effective June 3, 2003, the Company completed the
transaction for the sale of the proprietary school business, and
sold Elley to its president and former owner.  At closing, the
Company received $50,000 in cash proceeds from the sale.  In
addition it will receive 25% of the proceeds from the sale or
refinancing of the schools to a third party, which must take place
within seven years from the date of closing.  Substantially all the
assets and liabilities on the balance sheet were acquired by the
purchaser, and all pending litigation with the previous owners of
the school was settled.

          During Fiscal 2003, the Company took a non-cash charge of
$584,941 for discontinued operations in connection with the sale of
Mildred Elley.  The total non-cash charge (since the school was
recognized as discontinued operations in Fiscal 2002) was
$3,117,043.  The revenues for the delivery segment were $3,225,410,
$5,882,026 and $4,966,974 for the period November 1, 2002 through
the date of sale, and for the fiscal years ended October 31, 2002,
and 2001, respectively.

          Consistent with the Company's belief that its resources
need be focused on the assessment segment of the K-12 market, in
July 2003, the Company sold substantially all the assets of Modern
Learning Press, ("MLP") its wholly owned subsidiary and sole
component of the Company's instructional segment.  Delta Education
LLC ("Delta") purchased such assets for $4,020,000, and Delta
assumed certain liabilities.  The Company retained the business and
assets related to its test preparation materials division,
Kingsbridge Press, which it considers consistent with the
activities of its sole remaining segment.  The Company recorded a
gain on the disposal of the instructional segment totaling
$1,748,272 less taxes of $699,309.  Revenues from the instructional
segment totaled $1,321,278, $2,862,927 and $2,839,008 for the
period November 1, 2002 through the date of sale and for the years
ended October 31, 2002 and 2001, respectively.

          See "Management's Discussion and Analysis or Plan of
Operation" for further information on the effects of the
disposition of Mildred Elley and Modern Learning Press.

MARKETING

          The Company markets its assessment products and services
as follows:

          *  Sales of secure tests to large-scale users (such as
     state education departments) are conducted directly by the
     Company's staff.  This includes making presentations and
     negotiating contracts and license agreements.

          *  Sales of the Company's products and services as
     described in the Company's catalogs are made primarily through
     direct mail campaigns to elementary school, secondary school
     and college markets.  The Company also exhibits its products
     at educational trade shows and advertises in trade journals.

          *  In addition, the Company's staff and its independent
     consultants provide presentations and in-service workshops
     supporting the Company's products.

          *  Sales of custom-designed testing and consulting are
     accomplished via bidding processes and attendance at
     professional meetings.

          The Company sells its assessment products on a contract
or purchase order basis in accordance with a published price list.
Depending upon the contract or the purchase order, the Company
sells its products on a net 30-day or other contractual terms.  The
Company does not offer extended credit terms to its customers.
Historically, bad debts with respect to its assessment products
have not been material.

          The Company markets its instructional products almost
exclusively through direct mail programs and independent sales
representatives.

COMPETITION

          Success in the educational industry will be based on
scientific and technological superiority, service, product support,
the availability of patent protection, access to adequate capital,
the ability to successfully develop and market products and
processes and the ability to obtain government approvals.  Although
there is intense competition in the industry and there are both
domestic and foreign companies which may be deemed dominant
competitors, the Company believes that the features of its products
coupled with its ability to provide quality services will permit
the Company to compete successfully in its designated marketplace.

          The Company is subject to competition from various
sources.  The Company's principal competition comes from
established for-profit and non-profit companies in the testing
business and testing departments within certain states and school
districts, all of which are considerably larger and have greater
financial and human resources and marketing capabilities.
Competition may also come from education publishers who include
reading comprehension tests with their instructional materials and
companies that distribute reading motivation programs.

          Although there are a number of for-profit firms that
develop, publish, market, and distribute educational tests, the
market is dominated by three:  CTB/McGraw-Hill, Lake Forest,
Illinois, and Monterey, California; Harcourt Educational
Measurement, San Antonio, Texas; and The Riverside Publishing
Company, Chicago, Illinois.  As large, well-established publishers
of educational tests and related products and services, these firms
are considered strong competitors of the Company.

          There are a number of non-profit organizations that
develop, publish and distribute educational tests.  For example,
the American College Testing Program (ACT), Iowa City, Iowa;
American Council on Education (ACE), Washington, DC; and
Educational Testing Service (ETS), Princeton, New Jersey.  In
addition, there are various organizations that sponsor educational
tests even though they do not have the technical capability to
produce tests.  For example, The College Board, New York, New York,
sponsors the Scholastic Assessment Test (SAT) which is developed
for The College Board by ETS.  All of these non-profit
organizations have, or have access to, the capability to develop,
publish and distribute tests to schools.  Currently, ACT, The
College Board, and ETS publish one or more educational tests for
the school market.

          There are a number of for-profit and non-profit
organizations that provide test design, production and consulting
services to states under contract.  For example, National
Evaluation Systems (NES), Amherst, Massachusetts; and NCS Pearson,
Iowa City, Iowa; are among the for-profit firms that supply test
development, printing, distribution, and scoring services to
individual states under contract.  Among the non-profit
organizations, Measured Progress, Inc. (Dover, New Hampshire), ACT
and ETS have conducted such contract work for states and ETS is the
current contractor for the National Assessment of Educational
Progress.  By enabling states to have tests developed and
administered to their own specifications, these for-profit and non-
profit organizations compete indirectly with the Company's
assessment division.  In terms of size alone, these firms have
greater marketing capability and resources than does the Company.

          The MAC II Test exists in a competitive market; however,
several of the non-profit and for-profit testing companies do not
have a product that is in direct competition with the test.  The
major sources of direct competition are: the LAS (Language
Assessment Scales) tests published by CTB/McGraw-Hill, the LPTS
(Language Proficiency Test Series) published by Metri-Tech, and the
IPT (Idea Language Proficiency Test), published by Ballard and
Tighe and Harcourt's Stanford English Language Proficiency Test
which was introduced during fiscal year 2003.  Each of these tests
is designed to assess a student's level of English language
proficiency.  In indirect competition are tests that assess a
student's language proficiency in a primary language other than
English, such as the Spanish versions of the LAS and IPT. In
addition, some states have developed their own instruments for
statewide testing of English Language Learners, such as the MELAB
(Michigan English Language Assessment Battery) and the RPTE (Texas
Reading Proficiency Tests in English).

EMPLOYEES

          As of October 31, 2003, the Company employed a total of
53 employees in its continuing operations, 47 on a full-time basis,
and 6 on a part-time basis.  Of the 53 employees, 16 are engaged in
research and/or test development, 20 are in operations, 6 are in
executive capacities, and 11 are in marketing.  The Company had
employed a total of 124 employees in its discontinued operations as
of October 31, 2002.

GOVERNMENT REGULATIONS

          ASSESSMENT MATERIALS.  The NCLB legislation bodes well
          --------------------
for TASA.  NCLB provides funding of approximately $26 billion.
Almost half of that amount is for Title I funding, which requires
schools that take this funding to evaluate student progress in
reading.

          NCLB also provides almost one-half billion dollars for
annual testing in reading and math; Title III allows for three-
quarters of a billion dollars in bilingual and immigrant education
and almost one billion dollars in early language literacy.  The
following chart illustrates that TASA is strategically positioned
to take advantage of the funding opportunities under NCLB:

        Section of NCLB Act            TASA Products & Services
        -------------------            ------------------------

        Title I                        DRP/Signposts
        Early Childhood Literacy       DRP/Signposts
        Title III/ESL                  MAC II
        Annual Testing                 DRP/BETA


PATENTS, COPYRIGHTS, TRADEMARKS, TRADE SECRETS AND ROYALTIES

          The Company regularly asserts copyrights to all of its
assessment and instructional materials.

          The following are registered trademarks and/or service
marks of the Company:  TASA, the TASA logo, DRP Program The
Readability Standard, DRP, DRP--> BOOKLINK, DRP-->EZ Converter, DRP
Linking Text to Ability, BookMatch, DWM, Degrees of Reading Power,
Degrees of Word Meaning, MicRA-->DRP, TextSense, TASA Literacy,
Signposts and design, We've Done the Research for You, and The MAC
II Test of English Language Proficiency and design (both pending).

          Trade secrets are maintained by licenses for software and
certain proprietary data.  In addition, all employees execute
nondisclosure agreements as a condition of employment.

          In connection with the purchase by MLP of substantially
all the operating assets of Programs for Education, Inc. and
pursuant to a Royalty Agreement between MLP and Bernard Shapiro,
the founder of Programs for Education, Inc., MLP agreed to pay to
Mr. Shapiro a royalty on sales of certain titles for a term of
seven years following the closing of the acquisition in Fiscal 1997
in an amount equal to a minimum of $80,000 annually, with a maximum
of $120,000 in the first year, which increases each year to a
maximum of $240,000 in the seventh year.  The Company paid Mr.
Shapiro a total of $160,667 in Fiscal 2001, $161,558 in Fiscal
2002, and $158,440 in Fiscal 2003.

ITEM 2.   DESCRIPTION OF PROPERTY

          The Company completed the sale/lease-back of its 30,000
square foot building in Brewster, New York.  The building was
constructed in 1987, with the second phase completed in 1991.  In
July 2003, the company sold its headquarters building to 26 Palmer
LLC for $2,875,000.  The building and related improvements had a
net book value of $1,458,481.  The Company then signed a ten-year
triple net lease for the building.  The Company reported a pre-tax
gain on the sale totaling $1,254,383 net of closing costs totaling
$162,136.  As a result of the sale/leaseback, the gain has been
deferred and will be recognized over the ten-year term of the lease
as other income.  The cost per square foot is $10.50 for the July
2003/June 2004 period and increases each year thereafter.  The
final year of the lease has a rental cost of $13.69 per square
foot.  Proceeds from the sale of the building were used to repay
debt, to increase the Company's working capital and to fund the
expansion of its scanning and scoring facility.  In the fall of
2003, the Company completed an expansion of this scanning and
scoring facility at a cost of approximately $250,000.  This
facility is now four times the capacity of the prior facility and
will accommodate new growing business in this area.

          BETA rents a small office facility of 500 square feet in
Austin, Texas, which affords good proximity to the Texas Education
Agency.  The Company made the decision to open the office in Texas
because of the volume of business in that state.

          The Company expends its resources for capital
improvements as necessary.

ITEM 3.   LEGAL PROCEEDINGS

          In connection with the sale of the Mildred Elley School,
all pending litigation and claims between the Company and its
subsidiaries, on the one hand, and the former owner of Mildred
Elley and the former Mildred Elley entity, on the other hand, were
settled.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          None.


<PAGE>

                               PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

          (a) The Company's common stock, par value $.0001 per
share (the "Common Stock"), is traded in the Nasdaq Electronic
Bulletin Board under the symbol TASA.OB.  The approximate high and
low closing prices for each fiscal quarter in the two fiscal years
ended October 31, 2002 and October 31, 2003 were as follows:

                      Common Stock Prices
       --------------------------------------------

       Fiscal Quarter:       High ($)       Low ($)
       ---------------       --------       -------

       1st Qtr 02              0.85          0.40
       2nd Qtr 02              1.45          0.60
       3rd Qtr 02              1.45          0.51
       4th Qtr 02              0.90          0.51
       1st Qtr 03              1.01          0.55
       2nd Qtr 03              1.01          0.60
       3rd Qtr 03              1.13          0.70
       4th Qtr 03              2.05          1.05

          During the first quarter of Fiscal 2004 (through January
20, 2004), the Company's Common Stock had a high closing price of
$2.25 and a low closing price of $1.94.

          The Company is authorized to issue 5,000,000 shares, par
value $.0001 per share, of preferred stock. The stock may be issued
by the Board of Directors of the Company in one or more series and
with such preferences, conversion or other rights, voting powers
and other provisions as may be fixed by the Board of Directors in
the resolution authorizing its issuance without any further action
of the stockholders.  There are no shares of preferred Stock
outstanding.

          On January 2, 2001, the Company received a notice from
Nasdaq stating that the Company had failed to meet the continued
listing requirement of the SmallCap Market because the price of the
Company's Common Stock had been less than $1.00 for 30 consecutive
trading days.  The Company had 90 days to rectify this deficiency,
which required that the Company's Common Stock close at a price of
$1.00 or more for ten consecutive trading days.  The Company was
unable to satisfy this criterion, and as a result, the Company's
Common Stock was delisted from the SmallCap Market on July 2, 2001.
Since July 2, 2001, the Company's Common Stock has traded on the
Nasdaq Electronic Bulletin Board.

          As of January 20, 2004, there were 80 holders of record
of the Company's Common Stock.  This number of holders of record
does not include beneficial owners of the Company's Common Stock,
whose shares are held in the names of various security holders,
dealers and clearing agencies.  The Company believes that the
number of beneficial owners of its Common Stock held by others or
in nominee names exceeds approximately 600 in number.  The Company
has not paid any cash dividends, and does not anticipate doing so
in the immediate future as it intends to invest any earnings in the
development of the Company's business.

          The following table describes the equity securities of
the Company issuable as of October 31, 2003 pursuant to the
Company's equity compensation plans.  The Company has four equity
compensation plans, each of which has been approved by the
stockholders of the Company:  (1) the Amended and Restated 1991
Stock Incentive Plan (under which no further incentive awards may
be made); (2) the 2000 Stock Incentive Plan; (3) the Amended and
Restated Directors Stock Option Plan, and (4) the Consultants Stock
Incentive Plan.  For a description of each of the Company's equity
compensation plans, please see Item 10, "Executive Compensation-
Stock Incentive Plans".

<TABLE>
<CAPTION>


                       EQUITY COMPENSATION PLAN INFORMATION
                              AS OF OCTOBER 31, 2003
<S>               <C>                       <C>                     <C>
                     -----------------------------------------------------------------------------
                             Number of
                          securities to be                                 Number of securities
                            issued upon           Weighted-average       remaining available for
                            exercise of           exercise price of       future issuance under
                            outstanding              outstanding        equity compensation plans
                         options, warrants        options, warrants       (excluding securities
                             and rights              and rights           reflected in column (a))
                                 (a)                     (b)                       (c)
--------------------------------------------------------------------------------------------------
Equity compensation
plans approved by
security holders              587,963                  $2.366                    300,425
--------------------------------------------------------------------------------------------------
Equity compensation
plans not approved by
security holders                 --                       --                        --
--------------------------------------------------------------------------------------------------

</TABLE>


          (b) Not applicable.

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

          Except for historical information, the material contained
in this Management's Discussion and Analysis or Plan of Operation
is forward-looking.  For the purposes of the safe harbor protection
for forward-looking statements provided by the Private Securities
Litigation Reform Act of 1995, readers are urged to review the list
of certain important factors set forth in "Cautionary Statement for
Purposes of the "Safe Harbor" Provisions of the Private Securities
Litigation Reform Act of 1995" below, which may cause actual
results to differ materially from those described.

          This Amendment No. 2 on Form 10-KSB/A includes restated
audited consolidated financial statements for the fiscal year ended
October 31, 2003, which supersede the Company's previously issued
audited consolidated financial statements for such fiscal year.
This Amendment No. 2 also includes related changes to the
disclosures in "Management's Discussion and Analysis or Plan of
Operation."  See Note 4 to the accompanying audited financial
statements.  Except as otherwise specifically noted, all
information contained herein is as of October 31, 2003 and does not
reflect any events or changes that have occurred subsequent to that
date.  For the convenience of readers, this Amendment No. 2
restates in its entirety the Company's Annual Report on Form 10-KSB
for the fiscal year ended October 31, 2003.

COMPANY BACKGROUND

          For over twenty-seven years, TASA has served the rapidly
expanding education market, primarily through the publishing and
sale of its highly regarded proprietary reading tests.  In Fiscal
2002 and again in Fiscal 2003, the Company determined that its core
business was assessment.  It believed that this category provides
better long-term growth and profit potential than either the
proprietary school business or the supplemental instruction
segment.  Consequently, during the second fiscal quarter of Fiscal
2002, the Company reached a decision to sell its proprietary
school, and in the third quarter of Fiscal 2003, the Company
reached the decision to sell its supplemental instruction materials
business, Modern Learning Press.  Consequently both of these
segments are reported as discontinued operations.  See
"Discontinued Operations" below.  TASA revenues from the assessment
segment in Fiscal 1994 were $2.0 million, and have increased by
acquisition and internal growth to $9.8 million in Fiscal 2003.

RESULTS OF OPERATIONS

          The assessment business has two units; proprietary
products and services, and custom test development.  The following
table sets forth the revenues in each of these units and the annual
percentage change for each of these units, for Fiscal 2003, 2002
and 2001:

            TASA Revenues Breakdown (in thousands of dollars)
                       and % of Year-To-Year Change


<TABLE>
<CAPTION>
                                             Fiscal Year Ended October 31,
                          ---------------------------------------------------------------
                           2001-
                           2003           2003             2002               2001
                           ----           ----             ----               ----

                             %                 %                  %                    %
                           Change     $     Change      $       Change      $        Change
                           ------    ---    ------     ---      ------     ---       ------

<S>                     <C>     <C>        <C>     <C>        <C>     <C>         <C>


Proprietary Products
and Services Revenues      22.6%   $4,428.3    3.9%   $4,262.8   18.0%    $3,612.5     23%

Custom Services
Revenues                   78.9%   $5,333.4   61.6%   $3,299.8   10.7%    $2,981.7     52%

Total Revenues From
Assessment Products and
Services                   48.0%   $9,761.7   29.1%   $7,562.5   14.7%    $6,594.2     35%

</TABLE>

          The following are selected ratios as a percentage of
revenues from continuing operations based on the Company's
financial statements:

                                            Fiscal Year Ended October 31,
                                            -----------------------------

                                               2003      2002     2001
                                             ----------------------------

                                             ============================
Revenues from continuing operations. . . . .   100%      100%     100%
   Gross profit margins. . . . . . . . . .      48%       52%      63%
Operating expenses:
     Selling expenses. . . . . . . . . . . .    15%       15%      13%
     General & administrative. . . . . . . .    22%       27%      33%
Income from operations. . . . . . . . . . .     11%       10%      18%
Other income (expense)
   Gain (loss) on sales of assets. . . . . .    --        --       --
   Interest expense, net. . . . . . . . . .     (4%)      (7%)     (9%)
Income (loss) before income
     taxes from continuing operations. . . .     7%        3%       9%
Income taxes. . . . . . . . . . . . . . . .      3%        1%       3%
Income (loss) from continuing operations. .      4%        2%       6%
                                             ============================



FISCAL 2003 AS COMPARED TO FISCAL 2002

          REVENUES.  The Company's revenues from continuing
          --------
operations for the fiscal year ended October 31, 2003 were
$9,761,638, representing a 29.1% increase or $2,199,170 over
$7,562,468 for the fiscal year ended October 31, 2002.  The overall
increase was primarily attributable to internal growth of the
Company's custom testing unit.

          Revenues for assessment products and services, through
the Company's proprietary tests unit, increased 3.9%, or $165,500,
to $4,428,300 in Fiscal 2003 from $4,262,800 in Fiscal 2002.  This
increase was minimal due to reduced state and school district
budgets during the fourth quarter of the year.  While the economy
appears to be improving, the Company is uncertain if state tax
revenues will improve sufficiently during the coming fiscal year to
boost materially the sale of proprietary tests to school districts.
During the fourth quarter of Fiscal 2003, the Company expanded its
scoring and scanning capabilities, in anticipation of being able to
increase its third party scoring business.

          Revenues from BETA, the Company's custom testing unit,
increased by $2,033,600, or 61.6%, during the same period, to
$5,333,400 in Fiscal 2003, from $3,299,800 in Fiscal 2002.  This
increase was due to BETA's obtaining a number or multi-year
contracts in the later half of Fiscal 2002 with specific
assignments in Fiscal 2003.  Since these multi-year contracts also
have an impact on the coming fiscal year, the Company believes that
it will continue to show continued strength in BETA in 2004.

          COST OF GOODS SOLD.  Cost of goods sold increased by 41%
          ------------------
or $1,478,468 from $3,596,680 in Fiscal 2002 to $5,075,148 in
Fiscal 2003.  As a percentage of revenue, cost of goods increased
from 48% in Fiscal 2002 to 52% in Fiscal 2003.  This increase is
primarily due to the change in revenue mix between proprietary and
custom products and services.  In Fiscal 2002, BETA, the custom
business, accounted for 45% of the revenue stream, and in Fiscal
2003, BETA accounted for 55% of the revenue stream.  The delivery
of custom products and services has a higher cost per revenue
dollar.  Consequently, as the revenue mix changes towards custom
revenues, the percentage cost of goods increases.

          GROSS PROFIT.  The Company's gross profit for Fiscal 2003
          ------------
increased by $720,702, or 18.2%, from $3,965,788 in Fiscal 2002 to
$4,686,490 in Fiscal 2003.  The gross profit margin was 48% in
Fiscal 2003 versus 52% in Fiscal 2002. This change is a result of
changes in product mix.

          SELLING EXPENSES.  The Company's selling expenses
          ----------------
increased $284,278, or 24%, in Fiscal 2003, from $1,168,912 in
Fiscal 2002 to $1,453,190 in Fiscal 2003.  Selling expenses were
15% of revenues in both years.  The increased dollar expenditure
was a result of higher sales commission and shipping expenses, as
well as increased marketing expenditures to respond to marketing
opportunities created by NCLB.  The Company believes that this is
the appropriate level of expenditure as a percentage of revenues
for the coming fiscal year.

          GENERAL AND ADMINISTRATIVE.  The Company's general and
          --------------------------
administrative expenses for Fiscal 2003 increased $170,199, or
8.4%, from $2,019,119 in Fiscal 2002 to $2,189,318 in Fiscal 2003.
However, as a percentage of revenues, G&A decreased from 27% in
Fiscal 2002 to 22% in Fiscal 2003.  The Company believes that as
revenues continue to grow in the future, the ratio of G&A to
revenues will remain steady or may decline slightly.

          INCOME FROM OPERATIONS.  Income from operations increased
          ----------------------
by $266,225 or from $777,757 in Fiscal 2002 to $1,043,982 in Fiscal
2003.  The increase in income is due to increased revenues, partially
offset by higher cost of sales.

          EBITDA FROM OPERATIONS. Earnings before interest, taxes,
          ----------------------
depreciation, and amortization from continuing operations increased
$248,343, or 17.7%, from $1,400,949 in Fiscal 2002 to $1,649,292 in
Fiscal 2003.  However, this comparison is somewhat ambiguous since,
in July 2003, the Company completed the sale/leaseback of its
building.  Consequently, approximately $116,000 of lease expense
reduced EBITDA in Fiscal 2003 without a corresponding charge in
2002.

          EBITDA is a non-GAAP financial measure and should not be
used as a substitute for the directly comparable GAAP financial
measure.  In order to facilitate an understanding of the components
of EBITDA and their effect on the results of operations, the
following table is provided as a reconciliation of reported income
from continuing operations to EBITDA from operations.

                        EBITDA from Operations


                                             Fiscal Year Ended
                                                 October 31,

                                           2003             2002
                                           ----             ----

Income form operations               $ 1,043,982       $  777,757

Depreciation & amortization              605,310          623,192
                                     -----------       ----------

EBITDA from operations               $ 1,649,292       $1,400,949
                                     ===========       ==========


          OTHER INCOME (EXPENSES) FROM CONTINUING OPERATIONS.  Net
          --------------------------------------------------
other (expense) decreased 36%, or $202,009, from ($564,136) in
Fiscal 2002 to ($362,127) in Fiscal 2003.  The decrease in other
(expense) was primarily due to a reduction in interest expense from
the repayment of the Company's subordinated debt, as well as the
gain on the sale/leaseback of the building.  The Company does not
currently anticipate that it will need to borrow significant
capital in the next fiscal year in order to finance its core
business.

          In July 2003, the Company sold its headquarters building
to 26 Palmer LLC for $2,875,000.  The building and related
improvements had a net book value of $1,458,481.  The Company
reported a gain on the sale totaling $1,254,383, net of closing
costs totaling $162,136.  The building was then leased back to the
Company under a ten year lease agreement.  As a result of the sale
leaseback, the gain on the sale has been deferred and will be
recognized over the term of the lease as "other income."

          DISCONTINUED OPERATIONS.  In evaluating the Company's
          -----------------------
strategic alternatives, TASA made the decision to focus on the
assessment market, particularly the K-12 segment.  As such, in June
2003, the Company completed the sale of Mildred Elley, its post
secondary school division, and in July 2003, the Company completed
the sale of its supplemental instruction unit, Modern Learning
Press, Inc.  During Fiscal 2003, the Company took a non-cash charge
of $584,941 for discontinued operations in connection with the sale
of Elley.  The total non-cash charge (since the school was
recognized as discontinued operations in Fiscal 2002) was
$3,117,043.  The Company recorded a gain on the disposal of the
instructional segment totaling $1,815,092, less taxes of $726,036.
The result of these transactions was a gain of $180,218 from
discontinued operations versus a loss of ($2,474,744) in the prior
year.

          INCOME AND EARNINGS PER SHARE.  Combining income from
          -----------------------------
both continuing and discontinued operations, the Company had net
income of $535,533 in Fiscal 2003 versus a net (loss) of
($2,348,005) in Fiscal 2002.

          For Fiscal 2003, the Company had diluted earnings per
share of $0.20, versus a loss of ($0.91) per share in Fiscal 2002.
Earnings from continuing operations were $355,315, or $0.13 per
diluted share, in Fiscal 2003, as compared to $.05 in Fiscal 2002.

          The diluted weighted average shares outstanding were
2,661,014 in Fiscal 2003 versus 2,587,241 in Fiscal 2002.

FISCAL 2002 AS COMPARED TO FISCAL 2001

          REVENUES.  For Fiscal 2002, the Company's revenues from
          --------
continuing operations were $7,562,468, representing a 15% increase,
or $968,305, over $6,594,163 for the fiscal year ended October 31,
2001 ("Fiscal 2001").  The overall increase was primarily
attributable to growth of the Company's proprietary assessment
products and services.  The Company's proprietary testing unit
increased by 18%, which growth can be attributable to the continued
acceptance of the Company's key products, DRP and MAC 11, as well as
significant growth of our test scoring facilities.  Over the same
period, the Company's custom testing unit's revenues increased
modestly or, by 11%, from $2,983,892 to $3,299,400.  However,
custom testing business continued to be strong with a backlog of
contracts going into Fiscal 2003.

          COST OF GOODS SOLD.  Cost of goods sold in Fiscal 2002
          ------------------
increased by 48.1%, or $1,168,021 from $2,428,659 in Fiscal 2001 to
$3,596,680 in Fiscal 2002.  Cost of goods sold as a percentage of
revenues also increased from 37% to 48% due to a change in product
mix.  This increase was primarily the result of increased costs
required to deliver assessment products and services, more
specifically, the Company's custom test design division's services
which are typically associated with higher direct costs.

          GROSS PROFIT.  In Fiscal 2002, gross profit decreased by
          ------------
$199,716, from $4,165,504 in Fiscal 2001 to $3,965,788 in Fiscal
2002.  The gross profit margin percentage decreased in Fiscal 2002
to approximately 52% from 63% in Fiscal 2001.

          SELLING EXPENSES.  Selling expenses for Fiscal 2002
          ----------------
increased by 41%, or $340,851, from $828,061 in Fiscal 2001 to
$1,168,912 in Fiscal 2002.  As a percentage of revenues, selling
expenses increased to 15% in Fiscal 2002 versus 13% in Fiscal 2001.
The increase was attributable to the Company's desire to forward
spend to take advantage of NCLB legislation.

          GENERAL AND ADMINISTRATIVE.  The Company's general and
          --------------------------
administrative expenses decreased 7%, or $150,154, from $2,169,273
in Fiscal 2001 to $2,019,119 in Fiscal 2002.  General and
administrative expenses as a percentage of sales were 27% in Fiscal
2002 versus 33% in Fiscal 2001.

          INCOME FROM OPERATIONS.  Income from operations for
          ----------------------
Fiscal 2001 was $1,168,170 versus income from operations of
$777,757 in Fiscal 2002.  The decrease in income was a function of
an increased cost of sales without a corresponding increase in
revenues.  Certain revenues that had been anticipated in the fourth
quarter of Fiscal 2002 were recognized in the first quarter of
Fiscal 2003 due to circumstances beyond the Company's control.

          EBITDA.  Earnings (loss) before interest, taxes,
          ------
depreciation, and amortization decreased by $329,857 to $1,400,949
in Fiscal 2002 from $1,730,806 in Fiscal 2001. As a percentage of
revenues, EBITDA decreased to 18.5% in Fiscal 2002 versus 26.2% in
Fiscal 2001.  This decrease was attributable to increased cost of
sales and selling expense.

          EBITDA is a non-GAAP financial measure and should not be
used as a substitute for the directly comparable GAAP financial
measure.  In order to facilitate an understanding of the components
of EBITDA and their effect on the results of operations, the
following table is provided as a reconciliation of reported income
from continuing operations to EBITDA from continuing operations.

                        EBITDA from Operations


                                             Fiscal Year Ended
                                                 October 31,

                                           2002             2001
                                           ----             ----
Income form continuing operations      $  777,757        $1,168,170

Depreciation & amortization               623,192           562,636
                                       ----------        ----------

EBITDA from continuing operations      $1,400,949        $1,730,806
                                       ==========        ==========



          OTHER INCOME (EXPENSE).  Net other income (expense)
          ----------------------
decreased to ($564,136) in Fiscal 2002 versus ($590,300) in Fiscal
2001.  This decrease is primarily attributable to a reduction in
principal on certain loans as well as reduced interest rates.

          INCOME FROM CONTINUING OPERATIONS.  The Company had
          ---------------------------------
income from continuing operations of $126,739 in Fiscal 2002 versus
an income from continuing operations of $373,888 in Fiscal 2001.
The decrease of $247,149 was attributable to increased cost of
sales and marketing expense.

          INCOME (LOSS) FROM DISCONTINUED OPERATIONS.  Loss from
          ------------------------------------------
discontinued operations increased to ($2,474,744) in Fiscal 2002
from ($130,312) in Fiscal 2001.  The loss increased by ($2,344,432)
because the Company entered into a contract to sell Mildred Elley,
its post-secondary proprietary school in Fiscal 2002, and
consequently recognized the substantial portion of the loss in that
fiscal year.

          INCOME (LOSS) AND DILUTED EARNINGS (LOSS) PER SHARE.  Net
          ---------------------------------------------------
Income after taxes was $243,576 for Fiscal 2001 versus net loss
after taxes of ($2,348,005) for Fiscal 2002.  For Fiscal 2002,
diluted loss per share was ($.91) based on weighted average shares
outstanding of 2,587,241.  For Fiscal 2001, diluted earnings per
share was $.10 based on weighted average shares outstanding of
2,560,042.

LIQUIDITY AND WORKING CAPITAL

          WORKING CAPITAL.  Working capital decreased by $429,194
          ---------------
during Fiscal 2003 from $2,099,984, at October 31, 2002 to
$1,670,790 at October 31, 2003.  This decrease resulted primarily
from net assets from discontinuing operations sold during the third
quarter of Fiscal 2003.  The ratio of current assets to current
liabilities was approximately 2.26 to 1.0 at the end of the Fiscal
2003 versus 1.68 to 1.0 at the end of Fiscal 2002.

          CASH FLOW FROM OPERATING ACTIVITIES.  During Fiscal 2003,
          -----------------------------------
the Company had net cash provided by operating activities of
$709,810, as compared to $409,402 in Fiscal 2002.  The increase in
cash provided by operating activities resulted primarily from
increased net income.

          CASH FLOW FROM INVESTING ACTIVITIES.  During Fiscal 2003,
          -----------------------------------
the Company had net cash provided by investing activities of
$5,226,738, as compared to ($291,664) used in investing
activities for Fiscal 2002.  The cash provided by investing
activities in Fiscal 2003 was primarily from the proceeds from the
sale/leaseback of the Company's headquarters, and the sale of MLP.

          CASH FLOW FROM FINANCING ACTIVITIES.  The Company had net
          -----------------------------------
cash used in financing activities of ($5,067,566) for Fiscal 2003
as compared to ($49,472) for Fiscal 2002 used in financing activities.
The increase in cash used for financing activities resulted from
the prepayment of the subordinated debt and the mortgage payable on
the Company's facilities.

          In July 2003, the Company sold substantially all the
assets of MLP, sole component of the Company's instructional
segments to Delta Education, LLC ("Delta") for, $4,020,000 and
Delta assumed certain related liabilities.  In addition, the
Company is responsible, for the payment of up to $200,000 of
certain royalties for a one year period from June 1, 2003 through
May 31, 2004.  The Company has estimated these royalties, based on
historical amounts paid, to amount to approximately $175,000, which
it has reserved to reduce the gain from the sale of the segment.
The Company retained the business and assets related to its test
preparation materials, Kingsbridge Press, which it considers
consistent with the activities of its sole remaining segment.  The
Company recorded a gain on the disposal of instructional segment
totaling $1,748,272 less taxes of $699,309.  Revenues from the
instructional segment totaled $1,321,278, $2,862,927 and $2,839,008
for the period November 1, 2002 through the date of sale, and for
the fiscal years ended October 31, 2002 and 2001, respectively.

          In addition, the Company entered into a transitional
agreement with Delta, whereby the Company would continue to pay the
rent costs and employees of MLP through October 31, 2003 in
exchange for $130,000.  On October 31, 2003, the facilities
utilized by MLP were closed and the employees were terminated.  The
Company estimated these termination costs to be approximately
$130,000, which it has recorded as a cost of the sale of the
segment.

          On June 3, 2003, the Company sold substantially all the
assets of Elley.  Pursuant to the agreement, the Company received
$50,000.  In addition, the Company will receive 25 percent of the
proceeds from any sale or refinancing of the school by the
purchaser to a third party, which must take place within seven
years. The assets sold constitute substantially all the assets and
operations of the Company's educational delivery segment.  The
Company recorded a loss on the disposal of Mildred Elley totaling
$974,901 and a tax benefit of $389,960, to reflect the change in
the fair value of the net assets sold during the period November 1,
2002 through June 3, 2003.  The revenues for the delivery segment
were $3,225,417, $5,882,026 and $4,966,974 for the period from
November 1, 2002 through June 3, 2003, the date of sale, and the
fiscal years ended October 31, 2002 and 2001, respectively.

          In July 2003, the Company sold its headquarters building
to 26 Palmer LLC for $2,875,000.  The building and related
improvements had a net book value of $1,458,481.  The Company
reported a pre-tax gain on the sale totaling $1,254,383, net of
closing costs totaling $162,136.  The building was then leased under
a ten year lease agreement.  As a result of the sale/leaseback, the
gain has been deferred and will be recognized over the ten-year term
of the lease, as other income.  Through October 31, 2003, the
Company used approximately $210,000 of the proceeds for improvements
to the facilities.

          During the fiscal year ended October 31, 2003, options to
purchase 9,000 shares of the Company's Common Stock were exercised
resulting in proceeds totaling $4,140.

          In October 2003, the Company prepaid the remaining
outstanding principal balance on the subordinated debt totaling
$3,530,141.  The Company also charged to expense on the date of
prepayment, the remaining deferred interest and loan origination
fees with a remaining book value of $39,312 and $15,422,
respectively.

          Long-term debt, operating leases and other long-term
obligations as of October 31, 2003 mature as follows:


<TABLE>
<CAPTION>

                                               Payments due
Obligations            Total       Less than                             more than
                                     1 year     1-3 years   4-5 years     5 years
<S>              <C>            <C>          <C>         <C>         <C>
Long-term debt      $   38,000     $  7,600     $ 22,800    $  7,600    $       --
Operating leases     3,478,743      306,820      976,648     721,085     1,474,190
Other long-term
  obligations               --          --           --           --            --

Total obligations   $3,516,743     $314,420     $999,448    $728,685    $1,474,190
                    ==========     ========     ========    ========    ==========

</TABLE>


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

          The preparation of financial statements and related
disclosures in conformity with generally accepted accounting
principles in the United States of America requires management to
make estimates and assumptions that affect the amounts reported in
the Consolidated Financial Statements and accompanying notes.
Estimates are used for, but not limited to, the accounting for the
allowance for doubtful accounts, inventories, income taxes and loss
contingencies. Management bases its estimates on historical
experience and on various other assumptions that are believed to be
reasonable under the circumstances. Actual results could differ
from these estimates under different assumptions or conditions.

          The Company believes the following critical accounting
policies, among others, may be impacted significantly by judgment,
assumptions and estimates used in the preparation of the
Consolidated Financial Statements:

        *  Revenues from the Company's sales of its proprietary tests,
     including sales of the related ancillary materials, are recognized
     when the Company ships the physical product from its warehouse.
     The Company's revenues from performance of assessment consulting
     and psychometric services under long-term contracts are recognized
     on the percentage-of-completion basis pursuant to the provisions of
     Statement of Position No. 81-1, "Accounting for Performance of
     Construction-Type and Certain Production-Type Contracts" and
     Accounting Research Bulletin No. 45, "Long-Term Construction-Type
     Contracts".  For each contract, the Company compares the costs
     incurred in the course of performing such contract during a fiscal
     period to the total estimated costs of full performance of the
     contract, and recognizes a proportionate amount of revenue for
     such period.

          *  Deferred tax assets are recorded based on the
     Company's projected future taxable income and the resulting
     utilization of the deferred tax assets. To the extent that the
     Company would not be able to realize all or part of its
     deferred tax assets in the future, an adjustment to the
     deferred tax assets would be necessary and charged to income.

          *  The process of writing and calibrating a test passage
     takes approximately two years, and all costs associated with
     the process are capitalized during this period. Amortization of
     these costs begins once the development period has elapsed,
     which in most cases, represents the point in time at which the
     new test passage is placed into the test passage bank and
     becomes available to be utilized within the Company's existing
     tests, or the point in time at which a newly developed test
     becomes available for sale.  Costs capitalized in connection
     with the development of passages used in the Company's DRP Test
     have been estimated to have a useful life of eleven years and,
     accordingly, are being amortized over an eleven-year period.
     Such amortization costs are included in the costs of goods sold
     in that period.  Costs capitalized in connection with the
     development of passages used in all other of the Company's
     tests have been estimated to have a useful life of seven years
     and, accordingly, are being amortized over a seven-year period.
     If these estimates of the useful lives of test passages prove
     to be shorter periods, the Company would be required to
     accelerate the amortization of these passages, resulting in a
     reduction in income.

          *  In July 2003, the Company sold its headquarters
     building to 26 Palmer LLC for $2,875,000.  The building and
     related improvements had a net book value of $1,458,481.  The
     Company reported a gain on the sale totaling $1,254,383, net
     of closing costs totaling $162,136.  The building was then
     leased by the Company under a ten year lease agreement.  As a
     result of the sale-leaseback of the building, the gain has
     been deferred and will be recognized over the ten-year term of
     the lease as other income during the relevant period.

SELECTED FINANCIAL DATA

          The following tables summarize certain financial data for
the continuing operations of the Company for Fiscal 2003, 2002, and
2001, respectively.  See "Financial Statements" in Item 7 below.

                                           Fiscal Year Ended October 31,
                                    ------------------------------------------

                                         2003            2002           2001
                                    ------------------------------------------

INCOME STATEMENT DATA:
Operating revenues                   $9,761,638     $ 7,562,468    $ 6,594,163
Gross profit                          4,686,490       3,965,788      4,165,504
Income before income taxes              681,855         213,621        577,870
Income from continuing operations       355,315         126,739        373,888
Income (loss) from discontinued
operations
    Income (loss) from operations
    net of income tax (benefit) of
    ($248,127), $38,239 and
    ($86,874), respectively            (372,190)         57,358       (130,312)
    Income (loss) on disposal, net
    of income tax (benefit) of
    $309,349 and ($1,604,734), and
    $--, respectively                   552,408      (2,532,102)            --
    Income (loss) from discontinued
    operations                          180,218      (2,474,744)      (130,312)
Net income (loss)                       535,533      (2,348,005)       243,576
Diluted earnings per share from
continuing operations                     $0.13           $0.05          $0.15

Balance Sheets:
Current assets                       $2,998,149     $ 5,166,030    $ 4,895,019
Total assets                          7,546,876      12,806,762     15,369,054
Long-term obligations                    30,400       5,301,832      5,521,349
Total liabilities                     2,444,890       8,367,878      8,717,776
Working capital                       1,670,790       2,099,984      1,698,592
Stockholders' equity                  5,101,986       4,438,884      6,651,278


CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

          Certain statements contained in this Report contain
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995.  These are statements
that do not relate strictly to historical or current facts.  Such
forward-looking statements involve known and unknown risks and
uncertainties.  The Company's actual actions or results may differ
materially from those discussed in the forward-looking statements.
These risk factors include, without limitation:

          *  Rapid changes in (i) the technology used to administer
             standardized tests generally or market educational
             materials or (ii) in the policy considerations which
             determine which test will be administered;

          *  Non-renewal of the Company's annual contract with the
             State of Connecticut;

          *  Deficits in state and school budgets;

          *  The loss of any significant customer;

          *  The ability of the Company to compete successfully with
             the other providers of standardized tests (see
             "Description of Business--Competition", above);

          *  The ability of the Company to accommodate any changes in
             government regulation which may impact the marketability
             of its tests (see "Description of Business--Government
             Regulation", above);

          *  The ability of the Company to secure additional financing
             as and when necessary;

          *  The ability of the Company to retain the services of its
             key management, and to attract new members of the
             management team;

          *  The ability of the Company to effect and retain
             appropriate patent, copyright and trademark protection of
             its products;

          *  Any decrease in the market for educational consulting
             services; and

          *  Increased competition in the field of publishing.

          The Company undertakes no obligation to release publicly
any revisions to the forward-looking statements or to reflect
events or circumstances after the date of this Report.

ITEM 7.   FINANCIAL STATEMENTS

                           EXPLANATORY NOTE
                           ----------------

          This Amendment No. 2 on Form 10-KSB/A includes restated
audited consolidated financial statements for the fiscal year ended
October 31, 2003, which supersede the Company's previously issued
audited consolidated financial statements for such fiscal year.
This Amendment No. 2 also includes related changes to the
disclosures in "Management's Discussion and Analysis or Plan of
Operation."  See Note 4 to the accompanying audited financial
statements.  Except as otherwise specifically noted, all
information contained herein is as of October 31, 2003 and does not
reflect any events or changes that have occurred subsequent to that
date.  For the convenience of readers, this Amendment No. 2
restates in its entirety the Company's Annual Report on Form 10-KSB
for the fiscal year ended October 31, 2003.

          Financial information required by this item appears in
the pages marked F-1 through F-30 at the end of this Report and are
incorporated herein by reference as if fully set forth herein.


<PAGE>

                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



                                                        PAGE
                                                        ----

    REPORT OF INDEPENDENT REGISTERED
      PUBLIC ACCOUNTING FIRM                            F - 2

    CONSOLIDATED FINANCIAL STATEMENTS:

         CONSOLIDATED BALANCE SHEETS                    F - 3

         CONSOLIDATED STATEMENTS OF OPERATIONS          F - 5

         CONSOLIDATED STATEMENT OF CHANGES IN
           STOCKHOLDERS' EQUITY                         F - 7

         CONSOLIDATED STATEMENTS OF CASH FLOWS          F - 8

    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS          F - 10


ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE

          None.

ITEM 8A.  CONTROLS AND PROCEDURES

          (a) Evaluation of the Company's Disclosure Controls and
Procedures.  As of the end of the most recent fiscal year covered by
this Annual Report on Form 10-KSB, the Company evaluated the
effectiveness of the design and operation of its "disclosure
controls and procedures" ("Disclosure Controls"), and its "internal
controls and procedures for financial reporting" ("Internal
Controls").  This evaluation (the "Evaluation") was done under the
supervision and with the participation of management, including Mr.
Andrew Simon, the Company's Chief Executive Officer ("CEO") and
Chief Financial Officer ("CFO").  Rules adopted by the SEC require
that in each periodic report filed pursuant to the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the Company
present the conclusion about the effectiveness of the Company's
Disclosure Controls and Internal Controls based on and as of the
date of the Evaluation.

          Disclosure Controls are procedures that are designed with
the objective of ensuring that information required to be disclosed
in our reports filed under the Exchange Act, such as this Annual
Report, is recorded, processed, summarized and reported within the
time periods specified in the rule and forms.  Disclosure Controls
are also designed with the objective of ensuring that such
information is accumulated and communicated to the Company's
management, including the CEO and CFO, as appropriate to allow for
timely decisions regarding required disclosure.  Internal Controls
are procedures which are designed with the objective of providing
reasonable assurance that (1) the Company's transactions are
properly authorized; (2) the Company's assets are safeguarded
against unauthorized or improper use; and (3) the Company's
transactions are properly recorded and reported, all to permit the
preparation of our financial statements in conformity with
generally accepted accounting principles.

          The Company's management does not expect that the
Company's Disclosure Controls or our Internal Controls will prevent
all error and all fraud. Any control system, no matter how well
conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must
be considered relative to their costs.  Because of the inherent
limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of
fraud, if any, within the Company have been detected.  These
inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because
of simple error or mistake.  Additionally, controls can be
circumvented by the individual acts of some persons, by collusion
of two or more people, or by management override of the control.
The design of any system of controls also is based in part upon
certain assumptions about the likelihood of future events, and
there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions; over time,
control may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedure may
deteriorate.  Because of the inherent limitations in a cost-
effective control system, misstatements due to error or fraud may
occur and not be detected.

          The Evaluation included a review of the controls'
objectives and design, the controls' implementation by the Company
and the effect of the controls on the information generated for use
in this Annual Report. In course of the Evaluation, we sought to
identify data errors, controls problems or acts of fraud and to
confirm that appropriate corrective action, including process
improvements, were being undertaken.  This type of evaluation will
be done on a quarterly basis so that the conclusions concerning
controls effectiveness can be reported in each Quarterly Report on
Form 10-QSB and the Annual Report on Form 10-KSB.  The Company's
Internal Controls are also evaluated on an ongoing basis by the
Company's finance personnel and by the Company's independent
auditors in connection with their audit and review activities.  The
overall goals of these various evaluation activities are to monitor
the Company's Disclosure Controls and Internal Controls and to make
modifications as necessary; it is the Company's intent in this
regard that the Disclosure Controls and the Internal Controls will
be maintained as dynamic systems change (including improvements and
corrections) as conditions warrant.

          Among other matters, the Company sought in the Evaluation
to determine whether there were any "significant deficiencies" or
"material weaknesses" in the Company's Internal Controls, or
whether the Company had identified any acts of fraud involving
personnel who have a significant role in the Company's Internal
Controls.  This information was important both for the Evaluation
generally and because items 4, 5 and 6 in the Section 302
Certification require that the CEO and CFO disclose that
information to the Board's Audit Committee and to the Company's
independent auditors and to report on related matters in this
section of the Annual Report.  In the professional auditing
literature, "significant deficiencies" are referred to as
"reportable conditions"; these are control issues that could have a
significant adverse effect on the ability to record, process,
summarize and report financial data in the financial statements.  A
"material weakness" is defined in the auditing literature as a
particularly serious reportable condition where the internal
control does not reduce to a relatively low level the risk that
misstatements caused by error or fraud may occur in amounts that
would be material in relation to the financial statements and not
be detected within a timely period by employees in the normal
course of performing their assigned functions.  The Company also
sought to deal with other controls matters in the Evaluation, and
in case a problem was identified, we considered what revision,
improvement and/or correction to make in accordance with on-going
procedures.

          An Evaluation was carried out under the supervision and
with the participation of the Company's management, including the
CEO and CFO, of the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in Rule 13a-
15(e) or 15d-15(e) under the Exchange Act) as of the end of the
fiscal year covered by this Annual Report.  Based upon that
Evaluation, the Company's management, including the CEO and CFO,
had concluded at the time of the original filing of this Annual
Report that the design and operation of these Disclosure Controls
and Internal Controls were effective as of the end of the fiscal
year covered by this Annual Report.  However, based on a subsequent
evaluation in Fiscal 2005 the Company now believes that it did not
have adequate personnel and technical resources with respect to
accounting for the sale-leaseback of the Company's headquarters in
July 2003.  As a result, the gain from the sale-leaseback was
originally recognized in its entirety in the third fiscal quarter
of 2003, during which the sale-leaseback occurred.  After
consulting with the Company's independent registered public
accountants during Fiscal 2005, management has concluded that such
gain should have been deferred and recognized over the ten-year
term of the lease.  On May 24, 2005, the Company concluded that the
Company should restate its audited consolidated financial
statements for the fiscal years ended October 31, 2003 and 2004,
and its quarterly unaudited consolidated financial statements for
the quarters ended July 31, 2003, January 31, 2004, April 30, 2004,
July 31, 2004, and January 31, 2005.  Such restatements do not
affect the Company's revenues from operations for any of these
periods.  These restatements will reflect the correction in the
Company's accounting for the sale-leaseback transaction.  The
Company's management, including the CEO and CFO, have concluded
that, as of the end of the fiscal year covered by this Annual
Report, the Company's Disclosure Controls were not effective at the
end of such fiscal year to ensure that information required to be
disclosed by the Company in reports that it files or submits under
the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms.  The
Audit Committee has directed management to devote additional
resources to Disclosure Controls, and management is currently in
the process of implementing such directive.

          (b) Changes in Internal Controls.  Other than changes to
our accounting for the sale-leaseback transactions noted above, there
was no change in the Company's Internal Controls occurring in the
Company's fourth fiscal quarter that materially affected, or is
reasonably likely to materially affect, the Company's Internal Controls.


<PAGE>

                               PART III

ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
          PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

          As of January 20, 2004, the directors and executive
officers of the Company were as follows:

     Name                  Age         Position
     ----                  ---         --------

Michael D. Beck             57   Director; Vice President, TASA; and
                                 President, Chief Executive Officer, BETA

Steven R. Berger(1)(2)      48   Director

Peter A. Duhamel            58   Senior Vice President, TASA

Donald W. Hughes(1)         53   Director

Andrew L. Simon             61   Chairman of the Board of Directors;
                                 President, and Chief Executive Officer
                                 and Chief Financial Officer, TASA

Linda G. Straley            47   Director; Vice President, and Secretary, TASA

Thomas G. Struzzieri(1)(2)  45   Director

David L. Warnock(2)         46   Director

________________________
(1)	Member of the Audit Committee
(2)	Member of the Compensation Committee.

          Each director shall hold office until the earlier of the
next annual meeting of the Company's stockholders or his or her
resignation and until a successor is selected and qualified.

          MICHAEL D. BECK was elected as a Director of the Company
in March 1997 and has been Vice President of the Company since
January 1997.  Mr. Beck is also a Director and President and Chief
Executive Officer of BETA and is a Director of MLP.  Since 1983,
Mr. Beck has been President of BETA, which provides consulting and
contractual services to school districts, state education
departments and test and textbook publishers.  As of January 2,
1997, BETA became a wholly-owned subsidiary of the Company and Mr.
Beck continues to serve as the President of BETA.  Mr. Beck has
also provided consulting services on matters of educational
research and assessment for various military, governmental and
commercial organizations.  Mr. Beck received an A.B. from John
Carroll University and an M.A. from Fordham University.

          STEVEN R. BERGER was elected as a Director of the Company
in March 1996 and he also serves on each of the Company's
Compensation and Audit Committees.  Mr. Berger was a partner in the
law firm of Salans from January 1989 through September 2002.
Salans acted as special securities counsel to the Company from
January 1995 through September 2002.  Mr. Berger is currently a
shareholder in the law firm of Vedder, Price, Kaufman & Kammholz,
P.C. in New York City.  The Company has retained Vedder, Price,
Kaufman & Kammholz, P.C. since October 2002 as its special
securities counsel.  Mr. Berger received an A.B. from Harvard
University and a J.D. from Harvard Law School.

          PETER A. DUHAMEL joined the Company as the Chief
Operating Officer of TASA and Modern Learning Press, Inc. in
January 2000.  He is currently Senior Vice President of the
Company.  Before joining the Company, Mr. Duhamel was the National
Sales Manager for Prentice Hall Regents/Cambridge in Upper Saddle
River, New Jersey, from July 1997 until December 1999, and as such
was responsible for the sales of all Cambridge and Prentice Hall
Regents products to the kindergarten through the adult/academic and
GED markets through all lines of distribution.  From January 1991
until June 1997, Mr. Duhamel was the General Manager of Sales and
Marketing for the Troll School and Library in Mahwah, New Jersey,
during which time Mr. Duhamel was responsible for the sales and
marketing of Troll School and Library products to the educational
market place.  Mr. Duhamel received a B.S. from Western New England
College.

          DONALD W. HUGHES was elected as Director in June 2001.
Since July 2001, Mr. Hughes has served on, and is Chairman of, the
Company's Audit Committee.  Since 1999, Mr. Hughes has served as
Executive Vice President and Chief Financial Officer of Camden
Partners, Inc., and a member of and Chief Financial Officer of
Camden Partners Holdings, LLC, each of which is an affiliate of
Cahill Warnock.  Mr. Hughes has served as an officer of Cahill
Warnock since February 1997 and is a General Partner and Chief
Financial Officer of Cahill Warnock.  Prior to joining Cahill
Warnock in February 1997, Mr. Hughes had served as Vice President,
Chief Financial Officer and Secretary of Capstone Pharmacy
Services, Inc. from December 1995 and as Executive Vice President
and Chief Financial Officer of Broventure Company, Inc., a closely-
held investment management company, from July 1984 to November
1995.  Mr. Hughes also serves on the boards of Occupational Health
+ Rehabilitation Inc, and AgilQuest, Inc.  Mr. Hughes received a
B.A. from Lycoming College and an M.S.F. from Loyola College in
Maryland, and is a Certified Public Accountant.

          ANDREW L. SIMON was elected as Director and as President
and Chief Financial Officer of the Company in March 1995.  Mr.
Simon serves as Chairman of the Board of Directors.  Mr. Simon is
also a Director and Secretary of BETA.  He served as Interim
President of TASA from June 1994 through March 1995.  He was a
founder of the Company and previously served as a Director from
1976 to 1991 and has acted as a financial consultant to the Company
since its inception in 1976.  From 1983 to 1986, he was a Vice
President/Marketing Division Head in the Private Clients Group at
Bankers Trust Company.  He was a Vice President at Citibank, NA,
where he held a number of senior marketing and sales positions,
from 1980 to 1983.  Prior to 1980, Mr. Simon served as Marketing
Director for several consumer package goods companies including
Norcliff-Thayer and Lederle Laboratories.  He holds an M.B.A. from
Columbia University and a B.A. from Washington University.  Mr.
Simon is on The George Washington University National Council for
Education and Human Development and a director of The Hudson Valley
Trust.

          LINDA G. STRALEY was elected as a Director of the Company
and has been Vice President since June 1994.  From June 1994
through March 1995, she was Chairman of the Board of Directors.
She has been Secretary since August 1992 and, from 1984 to 1994,
she served as director of DRP Services for the Company.  Ms.
Straley received a B.A. in Education from Bethany College and an
M.S. in Educational Psychology and Statistics from the State
University of New York.

          THOMAS STRUZZIERI was elected a Director of the Company
in June 2000.  He serves on each of the Company's Audit and
Compensation Committees.  Mr. Struzzieri is the owner of HITS, a
special events production company.  HITS currently produces major
equestrian circuits in California, Florida, Virginia, New York,
Arizona, and Nevada.  He is a director of the American Horse Shows
Association and President of the National Hunter Jumper Council.
He is on the Board of Directors of the United Way of Dutchess
County, the Rhinebeck Center for Performing Arts, the Bardavon
Opera House, the Boy Scouts of American of Dutchess County and the
Astor Home for Children.  Mr. Struzzieri is also a trustee of
Vassar Hospital and a member of the Business and Community Leaders'
Advisory Committee of the Institute of Ecosystems Studies.  He
attended Vassar College.

          DAVID L. WARNOCK was elected as a Director of the Company
in October 1998 and, since that time, he has also served on the
Company's Compensation Committee.  Since 1999, Mr. Warnock has been
President and Chief Executive Officer of each of Camden Partners,
Inc. and Camden Partners Holdings, LLC, each of which is an
affiliate of Cahill Warnock.  Mr. Warnock is a founding partner of
Cahill, Warnock & Company, LLC, an asset management firm
established in 1995 to invest in small public companies.  From 1983
to 1995, Mr. Warnock was with T. Rowe Price Associates in senior
management positions, including President of the corporate general
partner of T. Rowe Price Strategic Partners and T. Rowe Price
Strategic Partners II, and as the Executive Vice President of T.
Rowe Price New Horizons fund.  Mr. Warnock also serves on the
Boards of Directors of Blue Rhino Corp., Bridges Learning Systems,
Concorde Career Colleges, Inc., Environmental Safeguards, Inc., the
National Alliance to End Homelessness, the Center for Fathers,
Families and Workforce Development, Nobel Learning Communities, and
CardSystems Solutions, Inc.  Mr. Warnock received a B.A. in History
from the University of Delaware and a Masters in Finance from the
University of Wisconsin.

ITEM 10.  EXECUTIVE COMPENSATION

          The following table shows compensation for services
rendered to the Company during Fiscal 2003, 2002 and 2001,
respectively, by the Chief Executive Officer, the President of
BETA, the Senior Vice President of TASA, the Company's former Chief
Financial Officer, and the former Executive Vice President of the
Company's proprietary secondary school unit.  Each executive
officer serves under the authority of the Board of Directors. No
other executive officer of the Company received cash compensation
that exceeded $100,000 during Fiscal 2003.  Therefore, pursuant to
Item 402 of Regulation S-B, only compensation for each of the
persons listed below is shown in the Summary Compensation Table
below.


<TABLE>
<CAPTION>

                      SUMMARY COMPENSATION TABLE



                                            Annual Compensation                Long-Term Compensation
                                     ------------------------------------------------------------------
                                                                             Awards             Payouts
                                                                             --------------------------

                                                                         Restricted     Securities            All Other
                                                          Other Annual     Stock        Underlying     LTIP    Compen-
 Name and Principal                   Salary      Bonus   Compensation    Award(s)       Option/      Payouts  sation
     Position                Year       ($)        ($)         ($)          ($)          SARs(1)        ($)      ($)
--------------------------------------------------------------------------------------------------------------------
<S>                       <C>     <C>         <C>       <C>            <C>         <C>              <C>       <C>
Andrew L. Simon,             2003    $227,000    $50,000    $23,346(2)       0           20,000/0(2)     0        0
President, Chief             2002    $219,166    $25,000    $22,125(2)       0           10,000/0(2)     0        0
Executive Officer            2001    $215,000    $40,000    $21,854(2)    10,000(2)      20,000/0(2)     0        0
and Chief Financial
Officer
--------------------------------------------------------------------------------------------------------------------
Michael D. Beck,             2003    $155,250    $65,048    $21,899(3)       0           12,000/0(3)     0        0
Vice President,              2002    $150,000    $25,414    $19,928(3)       0            6,000/0(3)     0        0
TASA; President              2001    $150,000    $47,854    $19,654(3)    10,000(3)      12,000/0(3)     0        0
and Chief
Executive
Officer, BETA
--------------------------------------------------------------------------------------------------------------------
Peter A.                     2003    $155,250    $25,857    $20,834(4)       0            5,000/0(4)     0        0
Duhamel, Senior              2002    $150,000    $43,902    $18,831(4)       0            6,000/0(4)     0        0
Vice President, TASA         2001    $122,260    $40 511    $17,848(4)    10,000(4)      12,000/0(4)     0        0
--------------------------------------------------------------------------------------------------------------------
Denise M.                    2003    $      0          0    $     0          0              0            0        0
Stefano, Chief               2002    $      0          0    $     0          0              0            0        0
Financial Officer            2001    $ 91,616          0    $ 9,945(5)       0              0            0        0
(resigned effective
July 31, 2001)
--------------------------------------------------------------------------------------------------------------------
Faith Takes,                 2003    $ 87,115          0    $ 7,531(6)       0              0            0        0
Executive Vice               2002    $150,000          0    $12,093(6)       0              0            0        0
President, TESC;             2001    $150,000          0    $ 9,945(6)       0              0            0        0
President and
Chief Executive
Officer, MESI
(resigned effective
June 2003)
--------------------------------------------------------------------------------------------------------------------

<FN>

*(1)	To date, the Company has issued no SARs.
 (2)    Includes: contributions to the Company's qualified 401(k)
        Profit Sharing Plan (the "401(k)") and the Company's Money
        Purchase Pension Plan (the "Pension Plan") of $10,000 in Fiscal
        2003, $8,500 in Fiscal 2002, and $8,500 in Fiscal 2001; and
        $8,250, $9,000, and $9,000 for a company car in Fiscal 2003,
        2002, and 2001, respectively.  Also includes: restricted shares
        and options issued after the end of Fiscal 2001 pursuant to the
        Company's 2000 Stock Incentive Plan, as part of a bonus paid in
        respect of Fiscal 2001; and stock options issued after the end
        of Fiscal 2002 pursuant to the Company's 2000 Stock Incentive
        Plan, as part of the bonus paid in respect to Fiscal 2002.
 (3)    Includes: contributions to the Company's 401(k) and Pension
        Plan of $10,000 in Fiscal 2003, $8,500 in Fiscal 2002; and
        $8,500 in Fiscal 2001; and $7,091, $7,091, and $7,091 for a
        company car in Fiscal 2003, 2002, and 2001, respectively.  Also
        includes: restricted shares and options issued after the end of
        Fiscal 2001 pursuant to the Company's 2000 Stock Incentive Plan,
        as part of a bonus paid in respect of Fiscal 2001; and stock
        options issued after the end of Fiscal 2002 pursuant to the
        Company's 2000 Stock Incentive Plan, as part of the bonus paid
        in respect to Fiscal 2002.
 (4)    Includes: contributions to the Company's 401(k) and Pension
        Plan of $10,000 in Fiscal 2003, $8,500 in Fiscal 2002 and $8,500
        in Fiscal 2001; and $5,994, $5,994 and $5,994 for a company car
        in Fiscal 2003, 2002 and 2001, respectively.  Also includes:
        restricted shares and options issued after the end of Fiscal
        2001 pursuant to the Company's 2000 Stock Incentive Plan, as
        part of a bonus paid in respect of Fiscal 2001; and stock
        options issued after the end of Fiscal 2002 pursuant to the
        Company's 2000 Stock Incentive Plan, as part of the bonus paid
        in respect to Fiscal 2002.
 (5)    Includes: contributions to the Company's 401(k) and Pension
        Plan of $0 in Fiscal 2003, $0 in Fiscal 2002 and, $4,581 in
        Fiscal 2001 and $0, and $2,541for a company car in Fiscal 2003,
        2002 and 2001, respectively.
 (6)    Includes: $4,990, $8,556 and $8,556 for a company car in
        Fiscal 2003, Fiscal 2002, and Fiscal 2001, respectively.
</FN>
</TABLE>


EMPLOYMENT CONTRACTS

          On March 1, 1996, the Company entered into an employment
agreement with each of Andrew L. Simon and Linda G. Straley,
pursuant to which the Company agreed to employ Mr. Simon and Ms.
Straley, and each of Mr. Simon and Ms. Straley agreed to remain, as
the Company's President and Chief Executive Officer, and Vice
President, respectively, for a term of three years, subject to
automatic yearly extensions and certain rights of termination as
provided in each such agreement.

          As of January 2, 1997, the Company entered into an
employment agreement with Michael D. Beck, pursuant to which the
Company agreed to employ Mr. Beck, and Mr. Beck agreed to remain,
as Vice President of TASA and President and Chief Executive Officer
of BETA, for a term of three years, subject to automatic yearly
extensions and certain rights of termination as provided in such
agreement.

          In the employment agreements with each of Messrs. Simon
and Beck and Ms. Straley, the Company has agreed to provide for
certain benefits and protections for such executive officers in
connection with a change of control of the Company.  Such
agreements provide that upon the occurrence of a change of control
(as defined in each agreement) and the termination of such
executive's employment agreement, such executive's employment
agreement would continue until the earlier of three years from the
date of such change of control or the date all of the Company's
obligations under the employment agreement are satisfied.  In
addition, in the event of a change of control, each executive
officer would be awarded for each fiscal year during the employment
term, an annual bonus in cash at least equal to the average annual
bonus payable to such executive in respect of two of the last three
fiscal years immediately preceding the date of the change of
control in which bonuses paid were higher.  In addition, Mr. Beck's
employment agreement provides that, in the event of a change of
control, he would be entitled to receive a bonus equal to the
average annual bonus payable to Mr. Beck from the Company in
respect of two of the last three fiscal years immediately preceding
the date of any change of control in which the bonuses paid were
higher.

          On December 1, 1999, the Company entered into an
employment agreement with Peter Duhamel, pursuant to which,
effective as of January 10, 2000, the Company agreed to employ Mr.
Duhamel.  Mr. Duhamel serves as Senior Vice President of the
Company, for a term of one year, subject to automatic yearly
extensions and certain rights of termination as provided in such
agreement.  The agreement contains a non-competition clause for one
year following termination of the executive's employment.

          Generally, each employee of the Company has agreed to the
assignment to the Company of the employee's rights to any
inventions relating to the Company's business or interest which
were conceived both prior to and during the period of employment
and, except under certain specified conditions, the Company's
employees are prohibited from competing for one year with the
Company in areas in which he or she was employed.

STOCK INCENTIVE PLANS

          The Board of Directors of the Company adopted the 1991
Stock Option Incentive Plan (the "Option Plan") on August 25, 1991
in order to attract and retain qualified personnel, which Option
Plan was approved by the stockholders on August 25, 1991.  The
Board of Directors adopted the Amended and Restated 1991 Stock
Option Incentive Plan (the "Amended Option Plan") in February 1996,
which Amended Option Plan amended and restated the Option Plan and
was approved by the stockholders of the Company on March 29, 1996.
Under the Amended Option Plan, options to purchase up to 625,000
shares of Common Stock were available to be granted to employees,
officers, directors and consultants of the Company.  The Amended
Option Plan terminated in 2001, after which no further options or
stock awards may be issued under the Amended Option Plan; all
options and other stock awards outstanding under the Amended Option
Plan at the termination date shall continue to be outstanding and
may be exercised in accordance with their respective terms, until
such options or other stock awards expire by their terms.

          The Board of Directors of the Company adopted the 2000
Stock Incentive Plan (the "2000 Plan") in February, 2000. The
stockholders of the Company approved the 2000 Plan at the Company's
Annual Meeting of Stockholders held on March 31, 2000.  Under the
2000 Plan, options or other stock awards with respect to up to
300,000 shares of the Company's Common Stock may be granted to
employees, officers, directors and consultants of the Company.  In
addition, any options outstanding under the Amended Plan, which
expire after the adoption of the 2000 Plan, are added to the number
of shares available under the 2000 Plan.  The terms of the 2000
Plan are substantially identical to the terms of the Amended Option
Plan, except for provisions with respect to the number of shares
which may be issued under the 2000 Plan and the expiration date of
the 2000 Plan.

          Each of the Amended Option Plan and the 2000 Plan
(collectively, the "Option Plans") is administered by the
Compensation Committee of the Board of Directors (the "Committee").
Subject to the terms of the Option Plans, the Committee is
authorized to select optionees and determine the number of shares
covered by each option and certain of its other terms.  The
exercise price of stock options granted under the Option Plans may
not be less than the fair market value of the Company's Common
Stock on the date of the grant.  In general, options become
exercisable after the first anniversary of the date of grant.  The
period within which any stock option may be exercised cannot exceed
ten years from the date of grant.  Options held by a terminated
employee expire three months after termination except in the event
of death, disability or termination for cause.  No one participant
may receive, in any one fiscal year, awards under the Option Plans
which would entitle the participant to receive more than 50,000
shares.

          In Fiscal 2001, 22,750 options were cancelled under the
Amended Option Plan.  No options were granted in Fiscal 2001 under
either the Amended Option Plan or the 2000 Plan.  In Fiscal 2002,
4,500 options were cancelled under the Amended Option Plan.  In
January 2002, restricted stock awards aggregating 35,000 shares and
79,800 options were granted under the 2000 Plan.  In Fiscal 2003,
57,000 options were cancelled under the Amended Option Plan, 39,500
options were granted under the 2000 Plan, 9,000 options were
exercised under the 2000 Plan and 500 options were cancelled under
the 2000 Plan.  As of October 31, 2003, options to purchase up to
an aggregate of 109,800 shares were outstanding under the 2000
Plan.  As of October 31, 2003, options to purchase up to an
aggregate of 413,788 shares were outstanding under the Amended
Option Plan.

<TABLE>
<CAPTION>


                    OPTION/SAR GRANTS IN LAST FISCAL YEAR
                             (INDIVIDUAL GRANTS)

                         Number of     Percent of Total
                         Securities      Options/SARs
                         Underlying       Granted to
                       Options/SARs(1)   Employees in      Exercise Or Base
Name                     Granted (#)      Fiscal Year      Price ($/Share)    Expiration Date
---------------------------------------------------------------------------------------------
<S>                   <C>               <C>             <C>                 <C>
Andrew L. Simon,           10,000            25.3%              $0.65            1/24/2013
President, Chief
Executive Officer
and Chief Financial
Officer
---------------------------------------------------------------------------------------------
Michael D. Beck, Vice       6,000            15.2%              $0.65            1/24/2013
President, TASA;
President and Chief
Executive Officer, BETA
---------------------------------------------------------------------------------------------
Peter Duhamel, Senior       6,000            15.2%              $0.65            1/24/2013
Vice President, TASA
---------------------------------------------------------------------------------------------
Faith Takes, Executive         --              --                  --                   --
Vice President, TESC;
President and Chief
Executive Officer, MESI
---------------------------------------------------------------------------------------------
</TABLE>

(1)	To date, the Company has issued no SARs.


<TABLE>
<CAPTION>

                  AGGREGATED OPTION/SAR EXERCISES IN LAST
                FISCAL YEAR AND FISCAL-END OPTION/SAR VALUES


                                                             Number of
                                                             Securities          Value of
                                                             Underlying       Unexercised In-
                                                            Unexercised         the-Money
                                                           Options/SARs(1)    Options/SARs(1)
                                                            at FY-End (#)      at FY-End ($)
                                                         ---------------------------------------
                            Shares
                         Acquired on     Value Realized      Exercisable/      Exercisable/
    Name                 Exercise (#)         ($)           Unexercisable     Unexercisable
------------------------------------------------------------------------------------------------

<S>                  <C>             <C>                <C>                <C>

Andrew L. Simon,              0                0            161,875/10,000     $37,440/$13,500(2)
President, Chief
Executive Officer and
Chief Financial Officer
------------------------------------------------------------------------------------------------
Michael D. Beck, Vice         0                0             82,750/6,000      $22,464/$8,100(2)
President, TASA;
President and Chief
Executive Officer,
BETA
------------------------------------------------------------------------------------------------
Peter Duhamel, Senior         0                0             52,000/6,000      $18,480/$8,100(2)
Vice President, TASA
------------------------------------------------------------------------------------------------
Faith Takes, Executive        0                0                  0                  0
Vice President, TESC;
President and Chief
Executive Officer, MESI
------------------------------------------------------------------------------------------------
</TABLE>

(1)	To date, the Company has issued no SARs.
(2)	Based on the closing price of the Company's Common Stock on
        NASDAQ on October 31, 2003, of $2.00.

DIRECTORS COMPENSATION

          The Board of Directors of the Company adopted the
Directors Plan in February 1996 in order to aid the Company in
attracting, retaining and motivating independent directors, which
Directors Plan was approved by the stockholders of the Company on
March 29, 1996.  The Directors Plan initially authorized awards up
to an aggregate of 25,000 shares of Common Stock.  In February
2000, the Board of Directors approved an amendment to the Directors
Plan increasing to 75,000 the number of shares which may be the
subject of stock options under the Directors Plan.  The
stockholders of the Company approved such amendment at the Annual
Meeting of Stockholders on March 31, 2000.  Under the Directors
Plan, non-qualified stock options to purchase up to 75,000 shares
of Common Stock may be granted to non-employee directors of the
Company, which options are granted automatically at the times and
in the manner stated in the Directors Plan.

          Subject to the terms of the Directors Plan, each non-
employee director receives 5,000 options on the day he (she) first
is elected to the Board of Directors, and 2,500 options on the date
of each annual meeting of the stockholders of the Company, provided
he (she) is re-elected to the Board of Directors.  The exercise
price of stock options granted under the Directors Plan is the fair
market value of the Company's Common Stock on the date of grant.
The options become exercisable after the first anniversary of the
date of grant and the term of the option cannot exceed ten years.
On March 30, 2001, the Company granted 10,000 options, on June 6,
2001, the Company granted 5,000 options; on March 20, 2002, the
Company granted 12,500 options under the Directors Plan; and on
April 25, 2003, the Company granted 10,000 options under the
Directors Plan.  As of October 31, 2003, an aggregate of 56,875
options were outstanding under the Directors Plan.

          Directors receive no compensation, other than the options
pursuant to the Directors Plan, for services in such capacity.

OTHER PLANS

          CONSULTANTS STOCK INCENTIVE PLAN.  In March 1997, the
          --------------------------------
Board of Directors of the Company adopted the Consultants Plan,
pursuant to which options to purchase up to 50,000 shares of Common
Stock may be granted to consultants to the Company. The Consultants
Plan is administered by the Board of Directors of the Company.
Subject to the terms of the Consultants Plan, the Board is
authorized to select optionees and determine the number of shares
covered by each option and certain of its other terms.  In general,
the exercise price of stock options granted under the Consultants
Plan is the fair market value of the Company's Common Stock on the
date of the grant, however, the Board has the discretion to use
another method of valuation if it determines that such other
valuation is warranted.  In general, options become exercisable six
months from the date of grant, although the Board has discretion to
set either longer or shorter vesting periods.  The period within
which any stock option may be exercised cannot exceed ten years
from the date of grant.  If a consultant's association with the
Company is terminated prior to the end of its agreed term, all
unexercised, deferred and unpaid awards shall be canceled
immediately, except in the event of the Consultant's death or
disability.  During Fiscal 2002, the Company granted 7,500 options
under the Consultants Plan.  As of October 31, 2003, 7,500 options
were outstanding under the Consultants Plan.

          PROFIT SHARING PLAN. The Company has a qualified 401(k)
          -------------------
Profit Sharing Plan.  For fiscal years ended before November 1,
2000, the 401(k) Plan allowed eligible employees to contribute up
to 15 percent (15%) of income through Company contributions and a
salary reduction mechanism.  Company contributions to the 401(k)
Plan were optional and accrued at the discretion of the Board of
Directors.  For Fiscal 2000 and Fiscal 1999, the Board of Directors
of the Company elected not to make a contribution to the 401(k)
Plan.  Effective November 1, 2000, the Company amended the 401(k)
Plan to provide a matching component under the 401(k) Plan of up to
five percent (5%) of each eligible employee's compensation.  In
addition, the eligibility requirements were amended to that an
employee is not eligible until completing twelve months or two
thousand hours of employment, and may only enter the 401(k) Plan at
specified entry dates.

          Net assets for the 401(k) Plan, as estimated by the
Massachusetts Mutual Life Insurance Company which maintains such
plan's records, were $2,341,940, $1,735,127 and $1,667,686, at
October 31, 2003, 2002 and 2001 respectively.

          MONEY PURCHASE PENSION PLAN.  In October 1991, the
          ---------------------------
Company adopted a Money Purchase Pension Plan, which has been
qualified by the Internal Revenue Service.  Under this Plan, for
fiscal years ended before November 1, 2000, the Company was
required to make an annual contribution to the Plan equal to ten
percent (10%) of each eligible employee's compensation.  Effective
November 1, 2000, the Company amended the Plan to exclude highly
compensated employees and to reduce the contribution to five
percent (5%) of each eligible employee's compensation.  In
addition, the eligibility requirements were amended to that an
employee is not eligible until completing twelve months of
employment, and may only enter the Pension Plan at specified entry
dates.

          Net assets for the Money Purchase Pension Plan, as
estimated by the Massachusetts Mutual Life Insurance Company which
maintains such plan's records, were $1,191,537, $940,550, and
$936,111at October 31, 2003, 2002, and 2001, respectively.

          For Fiscal 2003, Fiscal 2002 and Fiscal 2001, the
Company's retirement costs aggregated $198,000, $142,000 and
$146,000, respectively.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

          Section 16(a) of the Securities Exchange Act of 1934
requires the Company's directors, executive officers and persons
who own beneficially more than ten percent of the Company's
outstanding common stock to file with the SEC initial reports of
beneficial ownership and reports of changes in beneficial ownership
of common stock and other securities of the Company on Forms 3, 4
and 5, and to furnish the Company with copies of all such forms
they file.  Based on a review of copies of such reports received by
the Company, all of the Company's directors and officers timely
filed all reports required with respect to Fiscal 2003.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
          MANAGEMENT

          The following table sets forth certain information
regarding the beneficial ownership of the Company's Common Stock,
as of January 20, 2004, by (i) each person who is known by the
Company to own beneficially more than 5% of the Company's
outstanding Common Stock; (ii) each of the Company's officers and
directors; and (iii) all officers and directors as a group.

          As of January 20, 2004, there were 2,603,453 shares of
Common Stock outstanding.  Each share of Common Stock is entitled
to one vote per share.

<PAGE>


                                                   Shares of        Percent of
Name and Address of                              Common Stock      Common Stock
Beneficial Owners and                            Beneficially      Beneficially
Directors and Officers                              Owned             Owned
-------------------------------------------------------------------------------

5% Beneficial Owners:
--------------------

Cahill, Warnock Strategic                         592,849(1,2)        21.7%
Partners Fund, L.P.
c/o Cahill, Warnock & Co., LLC
1 South Street, Suite 2150
Baltimore, MD 21202
-------------------------------------------------------------------------------

Heidtke & Company
P.O. Box 190666
Nashville, Tennessee 37219                        215,000              8.3%
-------------------------------------------------------------------------------

Officers and Directors:
-----------------------

Michael D. Beck                                   174,875(3)           6.5%
4 Hardscrabble Heights
Brewster, NY 10509
-------------------------------------------------------------------------------

Steven R. Berger                                   10,625(4)             *
805 Third Avenue
New York, NY 10020
-------------------------------------------------------------------------------

Peter A. Duhamel                                   74,000(5)           2.8%
4 Hardscrabble Heights
Brewster, NY 10509
-------------------------------------------------------------------------------

Donald W. Hughes                                  633,199(6)          23.0%
1 South Street, Suite 2150
Baltimore, Maryland 21202
-------------------------------------------------------------------------------

Andrew L. Simon                                   272,113(7)           9.8%
4 Hardscrabble Heights
Brewster, NY 10509
-------------------------------------------------------------------------------

Linda G. Straley                                  124,494(8)           4.7%
4 Hardscrabble Heights
Brewster, NY 10509
-------------------------------------------------------------------------------

Thomas Struzzieri                                  15,000(9)            *
319 Main Street
Saugerties, NY 12477
-------------------------------------------------------------------------------

David L. Warnock                                  635,699(10)         23.1%
1 South Street, Suite 2150
Baltimore, Maryland 21202
-------------------------------------------------------------------------------

Officers and Directors as a                     1,306,806(11)         40.8%
Group (8 persons)
-------------------------------------------------------------------------------
________________
     * Less than 1%

          1  Includes 130,799 shares that Cahill, Warnock Strategic
Partners Fund, L.P. (the "Fund") has the right to acquire pursuant
to currently exercisable warrants (the "Fund Warrants").  Excludes
(a) 25,602 shares, and (b) 7,248 shares which may be acquired
pursuant to currently exercisable warrants (the "Strategic
Warrants"), owned by Strategic Associates, L.P., an affiliate of
the Fund, but as to which the Fund disclaims beneficial ownership.
("Strategic Associates"; together, with the Fund, the "Cahill,
Warnock Entities").  Pursuant to the Investor Rights Agreement (the
"Investor Rights Agreement") between the Company and the Cahill,
Warnock Entities, the Company has agreed that so long as the
Cahill, Warnock Entities own at least 50% of the Fund Warrants and
the Strategic Warrants (the "Warrants") (or if the Warrants have
been exercised, the shares issuable pursuant thereto), the Cahill,
Warnock Entities have the right to nominate two directors to the
Board of Directors of the Company.  David L. Warnock and Donald W.
Hughes are the two current directors who were nominated by the
Cahill, Warnock Entities.  Pursuant to the Investor Rights
Agreement, the directors and executive officers of the Company have
agreed, at each meeting of stockholders for the purpose of electing
directors, to cast their eligible votes in favor of the nominees of
the Cahill, Warnock Entities.

          2  Edward L. Cahill, David L. Warnock and Donald W.
Hughes are general partners of Cahill, Warnock Strategic Partners,
L.P. ("Cahill, Warnock Partners"), the Fund's sole general partner,
and the sole general partner of Strategic Associates.  Each of
David L. Warnock and Donald W. Hughes is also a director of the
Company (see footnotes 7 and 12 to this table).

          3  Includes (i) 42,000 shares which are owned jointly
with Mr. Beck's wife, (ii) 9,375 shares owned by Mr. Beck's
daughter, and (iii) 88,750 shares which Mr. Beck has the right to
acquire upon the exercise of currently exercisable stock options or
options that will become exercisable within 60 days.  Excludes
9,375 shares owned by Mr. Beck's wife, as to which Mr. Beck
disclaims beneficial ownership.

          4  Includes 10,625 shares which Mr. Berger has the right
to acquire upon the exercise of currently exercisable stock options
or stock options which become exercisable within 60 days, and
excludes 2,500 shares which are the subject of options that are not
currently exercisable.

          5  Includes 58,000 shares which are the subject of
options granted to Mr. Duhamel which are currently exercisable or
stock options which become exercisable within 60 days.

          6  Includes (i) 487,652 shares owned by the Cahill
Warnock Entities, (ii) 130,799 shares which the Fund has the right
to acquire pursuant to the Fund Warrant; (iii) 7,248 shares which
Strategic Associates, has the right to acquire pursuant to the
Strategic Warrant (see footnotes 1 and 2 to this table);  and (iv)
7,500 shares which Mr. Hughes has the right to acquire upon the
exercise of options currently exercisable stock options or stock
options which become exercisable within the next 60 days.  Excludes
2,500 shares which are the subject of options that are not
currently exercisable.

          7  Includes 171,875 shares which Mr. Simon has the right
to acquire upon the exercise of currently exercisable stock options
or stock options that will become exercisable within 60 days.
Excludes 375 shares of Common Stock owned by the retirement account
of Mr. Simon's wife, as to which Mr. Simon disclaims beneficial
ownership.

          8  Includes 73,800 shares which Ms. Straley has the right
to acquire upon the exercise of currently exercisable stock options
or options that will become exercisable within 60 days

          9  Includes 10,000 shares which Mr. Struzzieri has the
right to acquire upon the exercise of currently exercisable stock
options or options which become exercisable within the next 60
days.  Excludes 2,500 shares which are the subject of options that
are not currently exercisable

         10  Includes (i) 10,000 shares which Mr. Warnock has the
right to acquire upon the exercise of currently exercisable stock
options or stock options which become exercisable within 60 days;
(ii) 487,652 shares owned by the Cahill Warnock Entities, (iii)
130,799 shares which the Fund has the right to acquire pursuant to
the Fund Warrant; and (iv) 7,248 shares which Strategic Associates,
has the right to acquire pursuant to the Strategic Warrant (see
footnotes 1 and 2 to this table).  Excludes 2,500 shares which are
the subject of options that are not currently exercisable

         11  Includes 464,300 shares which officers and directors
have the right to acquire upon the exercise of currently
exercisable stock options, options which become exercisable within
the next 60 days, and 138,047 shares which the Cahill Warnock
Entities have the right to acquire upon the exercise of currently
exercisable warrants.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          In November 1998, the Company acquired substantially all
of the assets of Mildred Elley.  The Company financed the
acquisition through the issuance of the Debentures, with the
Warrants attached, pursuant to a Securities Purchase Agreement (the
"Securities Purchase Agreement"), with the Cahill, Warnock
Entities.  Pursuant to the Securities Purchase Agreement, the
Company:  (i) issued and sold to the Cahill, Warnock Entities 8%
Debentures due 2003 (the "Debentures"), dated October 28, 1998 (the
"Purchase Closing Date"), in the aggregate principal amount of
$4,000,000, (ii) issued and sold to the Cahill, Warnock Entities,
as additional consideration for purchasing the Debentures, the
Warrants to acquire an aggregate of 690,229.5 shares of the
Company's Common Stock, which, on the Purchase Closing Date,
constituted 20% of the Company's issued and outstanding common
stock on a fully diluted basis, after giving effect to the
transactions contemplated in the Securities Purchase Agreement and
(iii) authorized the issuance and sale in the future to the Cahill,
Warnock Entities of additional shares of the Company's Common Stock
upon the Company's exercise of a put option, the terms and
conditions of which are set forth in the Securities Purchase
Agreement.  The exercise price of the Warrants upon issuance was
$1.40 per share of Common Stock, subject to certain antidilution
adjustments set forth in the Warrants.  On December 3, 1999, in
exchange for the Cahill, Warnock Entities' consent, among other
things, to subordinate the Debentures to certain financing the
Company was seeking to obtain in connection with the implementation
of the Company's strategic plan and pursuant to a Consent,
Agreement and Amendment, dated as of December 3, 1999, among the
Company and the Cahill, Warnock Entities, the Board of Directors of
the Company approved a repricing of the Warrants to an exercise
price of $1.125 per share of Common Stock, subject to the same
antidilution adjustments referred to above.  On October 1, 2002,
the Company and the Cahill Warnock entities agreed to an extension
of the maturity date of the Debentures from October 28, 2003 until
February 1, 2004.  Using a portion of the proceeds from the sale of
MLP and the sale/leaseback of the Company's headquarters building,
both of which occurred in Fiscal 2003, the Company prepaid the
outstanding Debentures in the fourth quarter of Fiscal 2003.  A
portion of the Warrants held by the Cahill, Warnock Entities
expired at the end of Fiscal 2003, leaving the Cahill Warnock
Entities with an aggregate of 138,047 warrants outstanding until
April 2005.

          Pursuant to the Investor Rights Agreement between the
Company and the Cahill, Warnock Entities, the Company has agreed
that so long as the Cahill, Warnock Entities own at least 50% of
the Warrants (or if the Warrants have been exercised, the shares
issuable pursuant thereto), the Cahill, Warnock Entities shall have
the right to nominate two directors to the Board of Directors of
the Company.  David L. Warnock and Donald W. Hughes are the current
directors who were nominated by the Cahill, Warnock Entities.
Pursuant to the Investor Rights Agreement, the directors and
executive officers have agreed, at each meeting of stockholders for
the purpose of electing directors, to cast their eligible votes in
favor of the nominees of the Cahill, Warnock Entities.

          As of January 2, 1997, the Company purchased all of the
outstanding capital stock of BETA from the holders of such shares
for a purchase price equal to (i) $130,000 in cash, (ii) $150,000
payable in promissory notes (the "Notes"), bearing interest at the
rate of 8.25% and maturing on January 2, 1999, and (iii) 150,000
shares of the Company's Common Stock.  The Notes were paid in
December 1998.  Michael D. Beck, Vice President and Director of the
Company and President and Chief Executive Officer of BETA, Connie
Beck, Mr. Beck's wife, and Amanda Beck, Mr. Beck's daughter, were
the shareholders of BETA at the time of its acquisition.  Pursuant
to the Stock Purchase Agreement, Mr. Beck had the option to
repurchase all of the outstanding capital stock of BETA from the
Company for a period of six years from the Agreement Date. This
option expired unexercised on January 2, 2003.

          In November 1998, the Company purchased substantially all
of the assets of Mildred Elley for an aggregate purchase price of
$3,000,000, paid a portion in cash and the balance with a five-year
promissory note.   Simultaneous with the closing of such purchase,
the Company's subsidiary entered into an employment agreement with
Faith Takes, pursuant to which Ms. Takes agreed to remain as the
President and Chief Executive Officer of the Company's post-
secondary proprietary schools division.  Effective June 3, 2003,
the Company completed the disposition of the proprietary school
business, and sold Mildred Elley to its current president and
former owner.  At closing, the Company received $50,000 in cash
proceeds from the sale.  In addition it will receive 25% of the
proceeds from the sale or refinancing of the schools to a third
party, which must take place within seven years from the date of
closing.  Substantially all the assets and liabilities on the
balance sheet were acquired by the purchaser, and all pending
litigation with the previous owner of the school was settled.

          One of the Company's directors, Steven R. Berger, through
September 30, 2002, was a partner in Salans, which acted as special
securities counsel to the Company.  The Company paid legal fees of
$58,043 and $62,217, to Salans for Fiscal 2002 and 2001,
respectively.  As of October 1, 2002, Mr. Berger became a
shareholder in Vedder, Price, Kaufman & Kammholz, P.C.  The Company
has retained Vedder, Price, Kaufman & Kammholz, P.C. as its special
securities counsel, and the Company paid an aggregate of $83,082 in
legal fees to Vedder Price in Fiscal 2003.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

          (a) The following Exhibits are filed as part of this
              Report:

              3.1    Certificate of Incorporation, dated August
                     22, 1991 filed with the Secretary of State
                     of the State of Delaware (incorporated
                     herein by reference to the exhibit
                     contained in the Company's Quarterly Report
                     on Form 10-QSB for the fiscal quarter ended
                     January 31, 1999)

              3.2    Certificate of Merger dated August 26,
                     1992, filed with the Secretary of State of
                     the State of Delaware (incorporated herein
                     by reference to the exhibit contained in
                     the Company's Registration Statement on
                     Form SB-2 under the Securities Act of 1933,
                     as amended, filed with the Securities and
                     Exchange Commission on July 7, 1993)

              3.3    Certificate of Amendment of Certificate of
                     Incorporation dated March 4, 1999, filed
                     with the Secretary of State of the State of
                     Delaware (incorporated herein by reference
                     to the exhibit contained in the Company's
                     Quarterly Report on Form 10-QSB for the
                     fiscal quarter ended January 31, 1999)

              3.4    Amended and Restated By-Laws (incorporated
                     by reference to the exhibit contained in
                     the Company's Registration Statement on
                     Form S-3 (File No. 333-27659) under the
                     Securities Act of 1933, as amended, filed
                     with the Securities and Exchange Commission
                     on May 22, 1997)

              4.1    Specimen Certificate evidencing shares of
                     Common Stock (incorporated herein by
                     reference to the exhibit contained in the
                     Company's Registration Statement on Form S-
                     3 (File No. 333-75377) under the Securities
                     Act of 1933, as amended, filed with the
                     Securities and Exchange Commission on March
                     31, 1999)

              4.2    Form of Warrant (incorporated by reference
                     to the exhibit contained in the Company's
                     Registration Statement on Form S-3 (File
                     No. 333-27659) under the Securities Act of
                     1933, as amended, filed with the Securities
                     and Exchange Commission on May 22, 1997)

              4.3    Investor Rights Agreement, dated as of
                     September 4, 1998, by and among the
                     Company, Cahill Warnock Strategic Partners
                     Fund, L.P., Strategic Associates, L.P., and
                     the Individual Shareholders Named Therein
                     (incorporated by reference to the exhibit
                     contained in the Company's Current Report
                     on Form 8-K, which was filed with the
                     Securities and Exchange Commission on
                     November 23, 1998 (the "November 1998 8-K"))

              4.4    Registration Rights Agreement, dated as of
                     September 4, 1998, by and among the
                     Company, Cahill, Warnock Strategic Partners
                     Fund, L.P., and Strategic Associates, L.P.
                     (incorporated by reference to the exhibit
                     contained in the November 1998 8-K)

              4.5    Form of Warrant issued in connection with
                     the Securities Purchase Agreement by and
                     between the Company, Cahill, Warnock
                     Strategic Partners Fund, L.P. and Strategic
                     Associates, L.P. (incorporated by reference
                     to the exhibit contained in the November
                     1998 8-K)

              4.6    Amendment No. 1 to the Securities Purchase
                     Agreement, dated as of March 8, 1999, among
                     the Company, Cahill, Warnock Strategic
                     Partners Fund, L.P. and Strategic
                     Associates, L.P. (incorporated by reference
                     to the exhibit contained in the Company's
                     Annual Report on Form 10-KSB for the fiscal
                     year ended October 31, 1999)

              4.7    Consent, Agreement and Amendment, dated as
                     of December 3, 1999, by and among the
                     Company, Cahill, Warnock Strategic Partners
                     Fund, L.P. and Strategic Associates, L.P.
                     (incorporated by reference to the exhibit
                     contained in the Company's Annual Report on
                     Form 10-KSB for the fiscal year ended
                     October 31, 1999).

              4.8    Consent, Agreement and Amendment, dated as
                     of October 1, 2002, by and among the
                     Company, Cahill, Warnock Strategic Partners
                     Fund, L.P. and Strategic Associates, L.P.
                     (incorporated by reference to the exhibit
                     contained in the Company's Annual Report on
                     Form 10-KSB for the fiscal year ended
                     October 31, 2002)

             10.1    401(k) Plan (incorporated herein by
                     reference to the exhibit contained in the
                     Company's Registration Statement on Form
                     SB-2 under the Securities Act of 1933, as
                     amended, filed with the Securities and
                     Exchange Commission on July 7, 1993)

             10.2    Patent Assignment by Bertram Koslin to the
                     Company (incorporated herein by reference
                     to the exhibit contained in the Company's
                     Registration Statement on Form SB-2 (File
                     No. 33-65766) under the Securities Act of
                     1933, as amended, filed with the Securities
                     and Exchange Commission on July 7, 1993)

             10.3    Amended and Restated 1991 Stock Option
                     Incentive Plan (incorporated herein by
                     reference to the exhibit contained in the
                     Company's Quarterly Report on Form 10-QSB
                     for the fiscal quarter ended April 30, 1996)

             10.4    Directors Stock Option Plan (incorporated
                     herein by reference to the exhibit
                     contained in the Company's Quarterly Report
                     on Form 10-QSB for the fiscal quarter ended
                     April 30, 1996)

             10.5    2000 Stock Incentive Plan (incorporated
                     herein by reference to the exhibit
                     contained in the Company's Annual Report on
                     Form 10-KSB for the fiscal year ended
                     October 31, 2001)

             10.6    Consultants Stock Incentive Plan
                     (incorporated by reference to the exhibit
                     contained in the Company's Quarterly Report
                     on Form 10-QSB for the fiscal quarter ended
                     April 30, 1997)

             10.7    Employment Agreement with Andrew L. Simon
                     (incorporated herein by reference to the
                     exhibit contained in the Company's
                     Quarterly Report on Form 10-QSB for the
                     fiscal quarter ended April 30, 1996)

             10.8    Employment Agreement with Linda G. Straley
                     (incorporated herein by reference to the
                     exhibit contained in the Company's
                     Quarterly Report on Form 10-QSB for the
                     fiscal quarter ended April 30, 1996)

             10.9    Stock Purchase Agreement, dated as of
                     January 2, 1997, between Beck Evaluation &
                     Testing Associates, Inc., Connie K. Beck,
                     Michael D. Beck, Amanda P. Beck and the
                     Company, together with all schedules and
                     exhibits thereto (incorporated by reference
                     to the exhibit contained in the Company's
                     Quarterly Report on Form 10-QSB for the
                     fiscal quarter ended January 31, 1997)

             10.9    Employment Agreement, dated as of January
                     2, 1997, between the Company and Michael D.
                     Beck (incorporated by reference to the
                     exhibit contained in the Company's
                     Quarterly Report on Form 10-QSB for the
                     fiscal quarter ended January 31, 1997)

             10.10   Asset Purchase Agreement, dated as of May
                     30, 1997, by and between Programs for
                     Education, Inc., Bernard B. Shapiro, Modern
                     Learning Press, Inc. and the Company
                     (incorporated by reference to the exhibit
                     contained in the Company's Current Report
                     on Form 8-K, which was filed with the
                     Securities and Exchange Commission on June
                     16, 1997)

             10.11   Royalty Agreement, dated May 30, 1997, by
                     and between Modern Learning Press, Inc. and
                     Bernard B. Shapiro (incorporated by
                     reference to the exhibit contained in the
                     Company's Current Report on Form 8-K, which
                     was filed with the Securities and Exchange
                     Commission on June 16, 1997)

             10.12   Asset Sale Agreement, dated as of June 3,
                     2003, among Mildred Elley School, Inc.,
                     Touchstone Applied Science Associates,
                     Inc., TASA Educational Services
                     Corporation, Faith A. Takes and Empire
                     Education Corporation (incorporated by
                     reference to the exhibit contained in the
                     Company's Current Report on Form 8-K, as
                     amended, which was filed with the
                     Securities and Exchange Commission on June
                     18, 2003, as amended on September 15, 2003
                     (the "ME 8-K"))

             10.13   Escrow Agreement, dated as of June 3, 2003,
                     by and among Mildred Elley School, Inc.,
                     Touchstone Applied Science Associates,
                     Inc., TASA Educational Services
                     Corporation, Empire Education Corporation,
                     and Hodgson Russ LLP, as escrow agent.
                     (incorporated by reference to the exhibit
                     contained in the ME 8-K)

             10.14   Securities Purchase Agreement, dated as of
                     September 4, 1998, by and among the
                     Company, Cahill Warnock Strategic Partners
                     Fund, L.P., and Strategic Associates, L.P.
                     (incorporated by reference to the exhibit
                     contained in the November 1998 8-K)

             10.15   Employment Agreement, dated December 1,
                     1999, by and among the Company and Peter
                     Duhamel (incorporated by reference to the
                     exhibit contained in the Company's Annual
                     Report on Form 10-KSB for the fiscal year
                     ended October 31, 1999)

             10.16   Contract of Sale, dated as of January 31,
                     2003, between the Company and 26 Palmer,
                     LLC (incorporated by reference to the
                     exhibit contained in the Company's
                     Quarterly Report on Form 10-QSB for the
                     fiscal quarter ended January 31, 2003)

             10.17   Agreement of Lease between the Company and
                     26 Palmer, LLC (incorporated by reference
                     to the exhibit contained in the Company's
                     Quarterly Report on Form 10-QSB for the
                     fiscal quarter ended January 31, 2003)
             21      Subsidiaries of the Company (incorporated
                     by reference to the exhibit contained in
                     the Company's Annual Report on Form 10-KSB
                     for the fiscal year ended October 31, 1998)

             23      Consent of Lazar, Levine & Felix LLP (filed
                     herewith)

             31      Certification by Chief Executive Officer
                     and Chief Financial Officer (filed herewith)

             32      Certification by Chief Executive Officer
                     pursuant to 18 U.S.C. Section 1350, as
                     adopted pursuant to Section 906 of the
                     Sarbanes-Oxley Act of 2002 (filed herewith)

          (b) Reports on Form 8-K

              Current Report on Form 8-K, filed on June 18, 2003,
              as amended on September 15, 2003

              Current Report on Form 8-K, filed on September 15, 2003.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

          The Board of Directors of the Company appointed, and the
Audit Committee confirmed, the firm of Lazar, Levine & Felix LLP
("Lazar") as its independent auditors for the 2003 fiscal year.
Lazar has been serving the Company in this capacity since September
1995.  In Fiscal 2003 and Fiscal 2002, the Company incurred the
following professional fees from Lazar:

          AUDIT FEES.  In Fiscal 2003 and Fiscal 2002, the Company
          ----------
incurred $85,042 and $105,000, respectively, in fees in connection
with the audits of the Company's annual financial statements for
the fiscal years ended October 31, 2003 and October 31, 2002,
respectively, and for the reviews of the financial statements of
the Company included in the Company's quarterly reports for such
fiscal years.  The audit fees for Fiscal 2002 included $12,000 in
fees accrued for the audit of the Company's financial statements
for Fiscal 2001.

          AUDIT-RELATED FEES.  In Fiscal 2002, the Company incurred
          ------------------
$35,750 in fees in connection with Lazar's audits of the Company's
performance during Fiscal 2001 and Fiscal 2002 of a contract to
provide assessment and scoring services for a particular state.  In
Fiscal 2003, the Company incurred $12,100 in fees in connection
with Lazar's audits of the Company's performance during Fiscal 2002
and Fiscal 2003 under that same state contract.  Such audits were
required by the state contract.  In addition, the Company incurred
$11,000 in Fiscal 2003 and $8,390 in Fiscal 2002 in fees for a
separate Department of Education audit required for Mildred Elley,
prior to the disposition of such division.

          TAX FEES.  The Company did not incur any fees to Lazar in
          --------
Fiscal 2003 or Fiscal 2002 for services related to tax compliance,
tax planning, and reporting

          ALL OTHER FEES.  For all other services, the Company
          --------------
incurred an aggregate of $16,544 and $8,560, respectively, in fees
to Lazar during the Fiscal 2003 and Fiscal 2002, respectively, for
all non-audit services.  These services were rendered principally
in connection with the sale of the Company's post-secondary school
division and instructional materials division which have been
classified as discontinued operations.

          The Audit Committee believes that, on the basis of the
relevant facts and circumstances pertaining to that firm's
engagement by the Company, Lazar satisfies the requirements for
independence from the Company.

          AUDIT COMMITTEE PRE-APPROVAL OF AUDIT SERVICES AND
          --------------------------------------------------
PERMISSIBLE NON-AUDIT SERVICES.  Consistent with Sarbanes-Oxley and
------------------------------
the SEC regulations promulgated thereunder, the Audit Committee has
established a policy to pre-approve all audit and permissible non-
audit services to be performed by the Company's independent
accountants.



<PAGE>          F-1


             INDEX TO CONSOLIDATED FINANCIAL STATEMENTS






                                                                PAGE
                                                                ----

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM         F - 2

CONSOLIDATED BALANCE SHEETS                                     F - 3

CONSOLIDATED STATEMENTS OF OPERATIONS                           F - 5

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY       F - 7

CONSOLIDATED STATEMENTS OF CASH FLOWS                           F - 8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                      F - 10


                                  F - 1

<PAGE>          F-2



         REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To The Board of Directors
Touchstone Applied Science Associates, Inc. and Subsidiaries


We have audited the accompanying consolidated balance sheets of
Touchstone Applied Science Associates, Inc. and Subsidiaries as of
October 31, 2003 and 2002, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the three
fiscal years ended October 31, 2003.  These consolidated financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial statements
based on our audits.

We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States).  Those standards
require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation.  We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Touchstone Applied Science Associates, Inc. and Subsidiaries as of
October 31, 2003 and 2002 and the results of its operations and its cash
flows for the three fiscal years ended October 31, 2003 in conformity
with accounting principles generally accepted in the United States of
America.

As discussed in Note 4 to the Consolidated Financial Statements, the
accompanying 2003 financial statements have been restated.


Lazar Levine & Felix LLP
New York, New York
December 11, 2003
(June 3, 2005 as to the effects of the
  restatement discussed in Note 4, and
  August 3, 2005 as to the revenue
  recognition disclosure in Note 1)


                                  F - 2


<PAGE>          F-3


                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                                   Page 1 of 2
                        CONSOLIDATED BALANCE SHEETS
                                                                  October 31,
                                                             2 0 0 3       2 0 0 2
                                                             -------       -------
                                                          (As Restated)
<S>                                                    <C>             <C>

ASSETS
------

Current assets:
  Cash and temporary investments                          $   984,891     $   115,909
  Accounts receivable, net of allowance for doubtful
    accounts of  $6,971 and $24,434, respectively             959,987       1,071,107
  Inventories                                                 511,410         428,742
  Prepaid expenses and other current assets                   285,844         394,828
  Deferred income taxes                                       256,017              --
  Current assets held for sale                                     --       3,155,444
                                                          -----------     -----------

          Total current assets                              2,998,149       5,166,030

Property, plant and equipment - net of
  accumulated depreciation of $395,327 and
  $1,285,412, respectively                                    195,341       1,574,161
Property, plant and equipment held for sale                        --         184,730

Other assets:
  Test passage bank and test development, net of
    accumulated amortization of $2,767,504 and
    $2,362,963, respectively                                2,153,975       2,202,998
  Goodwill                                                    198,159         198,159
  Deferred income taxes                                     1,605,011       1,875,670
  Other assets                                                396,241         166,356
  Other assets held for sale                                       --       1,438,658
                                                          -----------     -----------

          Total assets                                     $7,546,876     $12,806,762
                                                          ===========     ===========




<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>

                                  F - 3


<PAGE>          F-4

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                                   Page 2 of 2
                       CONSOLIDATED BALANCE SHEETS

                                                                     October 31,
                                                               2 0 0 3         2 0 0 2
                                                               -------         -------
                                                            (As Restated)
<S>                                                   <C>              <C>

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

Current liabilities:
  Lines of credit                                          $       --     $        --
  Current maturities of long-term debt                          7,600          55,556
  Accounts payable                                            131,667         513,825
  Accrued expenses                                          1,062,653         713,161
  Deferred gain on sale of building - current portion         125,439              --
Current liabilities held for sale                                  --       1,783,504
                                                          -----------     -----------

          Total current liabilities                         1,327,359       3,066,046


Subordinated debt                                                  --       3,530,141
Long-term debt, net of current portion                         30,400       1,530,144
Deferred gain on sale of building, net
  of current portion                                        1,087,131              --
Other liabilities held for sale                                    --         241,547
                                                          -----------     -----------

          Total liabilities                                 2,444,890       8,367,878
                                                          -----------     -----------

Commitments and contingencies

Stockholders' equity:
  Preferred stock, $.0001 par value,
    5,000,000 authorized, 0  shares
    issued and outstanding, respectively                           --              --
  Common stock, $.0001 par value, 20,000,000
    shares authorized, 2,603,453 and 2,594,453
    shares issued and outstanding, respectively                   260             259
  Additional paid-in capital                                5,548,668       5,538,393
  Deferred interest                                                --        (117,293)
  Retained earnings (deficit)                                (446,942)       (982,475)
                                                          -----------     -----------

          Total stockholders' equity                        5,101,986       4,438,884
                                                          -----------     -----------

          Total liabilities and stockholders' equity       $7,546,876     $12,806,762
                                                          ===========     ===========


<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
                                  F - 4


<PAGE>          F-5

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

<TABLE>
<CAPTION>
                   CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                     Page 1 of 2

                                                       Fiscal Year Ended October 31,
                                                   2 0 0 3        2 0 0 2        2 0 0 1
                                                   -------        -------        -------
                                                (As Restated)
<S>                                          <C>            <C>            <C>

Net revenue                                     $9,761,638     $ 7,562,468     $6,594,163

Cost of goods sold                               5,075,148       3,596,680      2,428,659
                                                ----------     -----------     ----------

Gross profit                                     4,686,490       3,965,788      4,165,504
                                                ----------     -----------     ----------

Operating expenses:
  Selling expenses                               1,453,190       1,168,912        828,061
  General and administrative expenses            2,189,318       2,019,119      2,169,273
                                                ----------     -----------     ----------

Total operating expenses                         3,642,508       3,188,031      2,997,334
                                                ----------     -----------     ----------

Income from operations                           1,043,982         777,757      1,168,170

Other income (expense):
  Gain on sale/leaseback of building                41,813              --             --
  Gain (loss) on sale of assets                         --         (14,245)            --
  Interest expense, net                           (403,940)       (549,891)      (590,300)
                                                ----------     -----------     ----------

Income before income taxes                         681,855         213,621        577,870

Income taxes                                       326,540          86,882        203,982
                                                ----------     -----------     ----------

Income from continuing operations                  355,315         126,739        373,888
                                                ----------     -----------     ----------

Income (loss) from discontinued operations:
  Income (loss) from operations net of
  income tax expense (benefit) of $(248,127),
  $38,239 and $(86,874), respectively             (372,190)         57,358       (130,312)
  Income (loss) on disposal, net of income
  tax expense (benefit) of $309,349 and
  $(1,604,734)                                     552,408      (2,532,102)            --
                                                ----------     -----------     ----------

  Income (loss) from discontinued operations       180,218      (2,474,744)      (130,312)
                                                ----------     -----------     ----------

Net income (loss)                               $  535,533     $(2,348,005)    $  243,576
                                                ==========     ===========     ==========



<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
                                  F - 5


<PAGE>          F-6

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

<TABLE>
<CAPTION>
                   CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                     Page 2 of 2

                                                       Fiscal Year Ended October 31,
                                                   2 0 0 3        2 0 0 2        2 0 0 1
                                                   -------        -------        -------
                                                (As Restated)
<S>                                          <C>            <C>            <C>

Weighted average shares outstanding:
  Basic                                           2,596,252      2,587,241	2,559,453
  Diluted                                         2,661,014      2,587,241      2,560,042

Basic earnings (loss) per share
  Continuing operations                          $      .14     $      .05     $      .15
  Discontinued operations                               .07           (.96)          (.05)
                                                 ----------     ----------     ----------

                                                 $      .21     $     (.91)    $      .10
                                                 ==========     ==========     ==========

Diluted earnings (loss) per share
  Continuing operations                          $      .13     $      .05     $      .15
  Discontinued operations                               .07           (.96)          (.05)
                                                 ----------     ----------     ----------

                                                 $      .20     $     (.91)    $      .10
                                                 ==========     ==========     ==========
























<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
                                  F - 6


<PAGE>          F-7

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES
<TABLE>
<CAPTION>

         CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY




                                                                Additional                   Unearned        Retained
                  Preferred Stock          Common  Stock         Paid-in        Deferred     Compensatory    Earnings
                Shares      Amount      Shares      Amount       Capital        Interest     Stock           (Deficit)
                ------      ------      ------      ------       -------        --------     ----------      --------


<S>            <C>       <C>         <C>           <C>        <C>           <C>           <C>            <C>

Balance at
 November 1,
 2000              --       $   --      2,559,453     $256       $5,522,296    $ (352,523)   $(10,608)     $ 1,121,954

  Financial
   advisory
   services        --           --             --       --               --            --       9,357               --
  Interest
   expense         --           --             --       --               --       116,970          --               --
  Net income       --           --             --       --               --            --          --          243,576
                -----       ------      ---------     ----       ----------    ----------    --------      -----------

Balance at
 October 31,
 2001              --           --      2,559,453      256        5,522,296      (235,553)     (1,251)       1,365,530

  Issuance of
   common stock
   for payment
   of prior year
   bonuses         --           --         35,000        3           16,097            --          --               --
  Financial
   advisory
   services        --           --             --       --               --            --       1,251               --
  Interest
   expense         --           --             --       --               --       118,260          --               --
  Net (loss)       --           --             --       --               --            --          --       (2,348,005)
                -----       ------      ---------     ----       ----------    ----------    --------      -----------

Balance at
 October 31,
 2002              --           --      2,594,453      259        5,538,393      (117,293)         --         (982,475)

  Exercise of
   employee
   stock
   options         --           --          9,000        1           10,275            --          --               --
  Interest
   expense         --           --             --       --               --       117,293          --               --
  Net income       --           --             --       --               --            --          --          535,533
                -----       ------      ---------     ----       ----------    ----------    --------       ----------

Balance at
 October 31,
 2003              --       $   --      2,603,453     $260       $5,548,668    $       --    $     --      $  (446,942)
(As Restated)   =====       ======      =========     ====       ==========    ==========    ========      ===========








<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
                                  F - 7



<PAGE>          F-8

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES
<TABLE>
<CAPTION>

                   CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                     Page 1 of 2

                                                              Fiscal Year Ended October 31,
                                                         2 0 0 3        2 0 0 2         2 0 0 1
                                                         -------        -------         -------
                                                      (As Restated)
<S>                                                <C>            <C>             <C>

OPERATING ACTIVITIES
Net income (loss)                                      $ 535,533     $(2,348,005)     $ 243,576
Adjustments to reconcile net income (loss) to net
  cash provided by operating activities:
  Depreciation and amortization                          605,310         623,192        562,636
  Deferred interest                                      117,293         118,260        116,970
  Deferred income taxes                                  252,759          82,319        254,502
  Financial advisory services                                 --           1,251          9,357
  (Income) loss on discontinued operations              (861,757)      1,109,248             --
  Impairment of goodwill - discontinued operations            --       3,027,588             --
  Bad debt expense                                       (17,463)         19,912             --
  Gain (loss) on sale of assets                               --          14,245             --
  (Gain) on sale/leaseback of building                   (41,813)             --             --
Changes in operating assets and liabilities:
  Accounts receivable                                    128,583         187,395       (299,897)
  Inventories                                            (82,668)        (34,644)       (80,411)
  Prepaid expenses                                       108,087        (241,414)       (26,316)
  Other assets                                            (1,388)             --             --
  Net assets from discontinued operations                     --      (2,061,462)       (40,725)
  Accounts payable and accrued expenses                  (32,666)        (88,483)       423,176
                                                      ----------     -----------     ----------

        NET CASH FLOWS FROM OPERATING ACTIVITIES         709,810         409,402      1,162,868
                                                      ----------     -----------     ----------

INVESTING ACTIVITIES
  Test passage bank and test development                (355,518)       (213,986)      (346,398)
  Software development costs                            (175,682)        (12,616)       (20,493)
  Prepublication costs                                  (169,960)             --             --
  Proceeds from the sale of building                   2,875,000              --             --
  Proceeds from sale of assets                                --              --         17,000
  Proceeds from the sale of
    discontinued operations                            4,070,000              --             --
  Closing costs on sale of building                     (161,891)             --             --
  Closing costs on sale of discontinued
    operations                                          (556,037)             --             --
  Acquisition of fixed assets                           (299,174)        (65,062)       (32,279)
                                                      ----------     -----------     ----------

        NET CASH FLOWS FROM INVESTING ACTIVITIES       5,226,738        (291,664)      (382,170)
                                                      ----------     -----------     ----------




<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
                                  F - 8


<PAGE>          F-9

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

<TABLE>
<CAPTION>

              CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

                                                                   Page 2 of 2

                                                                Fiscal Year Ended October 31,
                                                           2 0 0 3         2 0 0 2        2 0 0 1
                                                           -------         -------        -------
                                                        (As Restated)
<S>                                                  <C>             <C>             <C>

FINANCING ACTIVITIES
  Net repayments from loan payable                               --       (49,472)       (697,748)
  Repayment of subordinated debt                         (3,530,141)           --              --
  Proceeds from the exercise of
   employee stock options                                    10,275            --              --
  Proceeds from long-term debt                               38,000            --              --
  Repayment of long-term debt                            (1,585,700)                           --            (45,592)
                                                         ----------     ---------      ----------

NET CASH FLOWS FROM FINANCING ACTIVITIES                 (5,067,566)      (49,472)       (743,340)
                                                         ----------     ---------      ----------

NET CHANGE IN CASH AND TEMPORARY INVESTMENTS                868,982        68,266          37,358

CASH AND TEMPORARY INVESTMENTS
  AT BEGINNING OF PERIOD                                    115,909        47,643          10,285
                                                         ----------     ---------      ----------

CASH AND TEMPORARY INVESTMENTS
  AT END OF PERIOD                                      $   984,891     $ 115,909       $  47,643
                                                        ===========     =========       =========

SUPPLEMENTAL CASH FLOW INFORMATION:
  Cash paid during the year for:

  Interest                                              $   404,333     $ 554,391       $ 722,030
                                                        ===========     =========       =========
  Income taxes                                          $    34,442     $ 163,660       $  29,700
                                                        ===========     =========       =========















<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
                                  F - 9


<PAGE>          F-10

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------------

Organization
------------

Touchstone Applied Science Associates, Inc. (the "Company") develops,
publishes and distributes a proprietary line of tests specifically to
meet clients' measurement specifications to elementary and secondary
schools, colleges and universities throughout the United States.  The
remainder of the Company's continuing operations is comprised of Beck
Evaluation & Testing Associates, Inc. ("BETA"), a company which designs,
develops and evaluates assessment needs for schools, school districts and
test and textbook publishers throughout the United States.  The Company's
instructional segment was comprised of Modern Learning Press, Inc.
("MLP").  Substantially all the assets of MLP were sold in July 2003
(note 2).  The Company's educational delivery segment was comprised of
TASA Educational Services Corporation ("TESC"), and MESI Acquisition
Corp. ("Elley"), the assets of which were sold in June 2003 (note 2).

The Company was originally incorporated in the State of New York in 1976.
In August 1991, the Company changed its corporate domicile to Delaware by
merger into a Delaware corporation created exclusively for that purpose.
In January 1997, the Company purchased the outstanding capital stock of
BETA.

Principles of Consolidation and Basis of Presentation
-----------------------------------------------------

The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, BETA, MLP, TESC and Elley.
All material intercompany transactions have been eliminated in
consolidation.  In addition, certain reclassifications have been made
in the accompanying consolidated financial statements in order to
conform to the presentation of the fiscal year ended October 31, 2003.
Due to the sale of Elley and MLP, the operations of the instructional
and delivery segments have been reflected as discontinued operations
(note 2).

Restatement
-----------

The audited consolidated financial statements included in this Report
for the Company's fiscal year ended October 31, 2003, have been
restated and supersede the Company's previously-issued audited
consolidated financial statements for such fiscal year (note 4).


                                  F - 10


<PAGE>          F-11

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
---------------------------------------------------------

Goodwill
--------

In June 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141, "Business
Combinations", and No. 142, "Goodwill and Other Intangible Assets",
effective for fiscal years beginning after December 15, 2001.  Under
the new rules, the pooling of interests method of accounting for
acquisitions is no longer allowed and goodwill and intangible assets
deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests in accordance with the Statements.

The Company has applied the new rules for goodwill and other intangible
assets beginning in the first quarter of the fiscal year ending October
31, 2003.  The Company performed the first of the required impairment
tests of goodwill as of November 1, 2002 and performed the annual tests
at October 31, 2003 and has determined there to be no impairment of the
remaining goodwill on those dates.  The net carrying value of goodwill
at November 1, 2003 is $198,159 for BETA.  Amortization of goodwill
included in continuing operations for the years ended October 31, 2002
and 2001 totaled $24,778 for each period respectively.

During the second quarter of the fiscal year ended October 31, 2002 as
a result of the then pending sale of its delivery segment (Note 2) the
Company deemed the goodwill purchased in the Elley transaction, with a
remaining book value totaling approximately $3,027,000, to be impaired.
The impairment of the goodwill from the Elley transaction was reported
as part of the loss on the disposal from discontinued operations in the
fiscal year ended October 31, 2002.

Cash and Temporary Investments
------------------------------

Cash and temporary investments include all cash balances on hand and
short-term, highly liquid investments with original maturities of three
months or less.

                                  F - 11


<PAGE>          F-12

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
--------------------------------------------------------

Inventories
-----------

Inventories, which based on the nature of the Company's operations
consist solely of finished goods, are stated at the lower of cost
(first-in, first-out method) or market.

Property, Plant and Equipment
-----------------------------

Property, plant and equipment are stated at cost.  The Company provides
for depreciation generally on an accelerated method (double-declining
balance) for personal property and on the straight-line method for real
property, by charges  to income at rates based upon estimated recovery
periods as follows:

    Building                              31-1/2 years
    Building improvements                 15 to 31-1/2 years
    Leasehold improvements                Remaining lease term or useful life
    Furniture, fixtures and equipment     5 to 7 years
    Automobiles                           5 years

Income Taxes
------------

The Company has elected to file a consolidated Federal income tax return
with its subsidiaries. The Company's deferred income taxes arise
principally from the differences in the recording of expenses relating
to the test passage bank and test development (Note 5), differences
relating to the reporting of goodwill by the Company's subsidiaries, and
net operating losses.  Income taxes are reported based upon Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes".

                                  F - 12


<PAGE>          F-13

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
---------------------------------------------------------

Software Development
--------------------

The Company accounts for costs associated with the development of
software products pursuant to Statement of Financial Accounting
Standards ("SFAS") No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed".  Pursuant to these
rules for product development, the work performed prior to the
determination of technological feasibility is treated as research and
development costs and is expensed as incurred.  From the point a project
obtains technological feasibility until it is ready for sale, the
payroll and payroll-related charges and any direct material costs are
capitalized.  Capitalization of computer software costs is discontinued
when the product is available to be sold.

As of October 31, 2003, 2002 and 2001 unamortized software development
costs totaled approximately $21,000, $97,000 and $124,000, respectively,
and were included as a component of other assets within the Company's
balance sheets.

Amortization
------------

Loan origination costs and mortgage costs (see Note 7) were amortized
using the straight-line method over the term of the indebtedness.  Other
capitalized costs are amortized using the straight-line method over a
period of five (5) years for software development and seven to eleven
(7 - 11) years for test passage bank and test development costs.
Amortization expense from continuing operations other than goodwill
totaled $522,584, $489,005 and $413,742 for the fiscal years ended
October 31, 2003, 2002 and 2001, respectively.  Amortization expense for
the next five years is as follows:

Year Ended October 31,
    2004           $445,987
    2005           430,689
    2006           382,947
    2007           355,867
    2008           296,642


                                  F - 13


<PAGE>          F-14

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
---------------------------------------------------------

Accrued Expenses
----------------

Accrued expenses consist of the following:
                                              October 31,
                                            2003       2002
                                            ----       ----
                                       (As Restated)

Retirement plans                       $  217,999    $145,047
Commissions                                27,093      57,061
Salary                                    333,326     134,723
Professional fees                         106,394     116,078
Royalties                                  99,524      19,699
Outside services                          162,998     142,748
Other                                     115,319      97,805
                                       ----------    --------

                                       $1,062,653    $713,161
                                       ==========    ========

Included in the accrued expenses for the year ended October 31, 2003 are
expenses related to the closing down of the MLP operations for salaries,
retirement plan contributions and royalties totaling $129,627, $23,064
and $75,335 respectively.

Concentration of Credit Risk
----------------------------

Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and accounts
receivable.  The Company maintains substantially all its cash balances
in a limited number of financial institutions.  The balances are insured
by the Federal Deposit Insurance Corporation up to $100,000.  At October
31, 2003 and 2002, the Company's uninsured cash balances totaled
$568,294 and $82,788, respectively.  The Company performs periodic
reviews of the relative credit rating of its banks to lower its risk.
The Company believes that concentration with regards to accounts
receivable is limited due to its large customer base.

Revenue Recognition
-------------------

Revenues from the Company's sales of its proprietary tests including
sales of the related ancillary materials, are recognized when the Company
ships the physical product from its warehouse.  The Company's revenues
from performance of assessment consulting and psychometric services under
long-term contracts are recognized on the percentage-of-completion basis
pursuant to the provisions of Statement of Position No. 81, "Accounting
for Performance of Construction-Type and Certain Production-Type Contracts"
and Accounting Research Bulletin No. 45, "Long-Term Construction-Type
Contracts".  For each contract, the Company compares the costs incurred in
the course of performing such contract during a fiscal period to the total
estimated costs of full performance of the contract, and recognizes a
proportionate amount of revenue for such period.

Prior to its disposal, tuition revenues from Elley's educational delivery
division were recognized at the point in time in which Elley had no exposure
to future tuition refunds associated with the respective academic semester.
Prior to its disposal, instructional revenues were recognized when the
product was shipped from the Company's facilities.


                                  F - 14


<PAGE>          F-15

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
---------------------------------------------------------

Rights of Return
----------------

There is a right of return on test booklets, answer sheets and certain
software products. Upon return within a specified period, a credit is
issued, with certain chargeoffs, or, in the case of software products,
the item is replaced.  Historically, the Company's returns have been
insignificant.  As a result, no reserve has been provided.

Use of Estimates
----------------

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and make disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Fair Value
----------

The Company has a number of financial instruments, none of which is held
for trading purposes.  The Company estimates that the fair value of all
financial instruments at October 31, 2003 and 2002, does not differ
materially from the aggregate carrying values of these financial
instruments recorded in the accompanying balance sheets.  The estimated
fair value amounts have been determined by the Company using available
market information and appropriate valuation methodologies.
Considerable judgment is necessarily required in interpreting market
data to develop the estimates of fair value, and, accordingly, the
estimates are not necessarily indicative of the amounts that the Company
could realize in a current market exchange.




                                  F - 15


<PAGE>          F-16

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
---------------------------------------------------------

Stock Based Compensation
------------------------

In October 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation". The Company currently
accounts for its stock-based compensation plans using the accounting
prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees". As the Company is not required to adopt
the fair value based recognition provisions prescribed under SFAS No.
123, as amended, it has elected only to comply with the disclosure
requirements set forth in the statement which includes disclosing pro
forma net income (loss) and earnings (loss) per share as if the fair
value based method of accounting had been applied.

The fair value of each option grant was estimated on the date of the
grant using the Black-Scholes option-pricing model with the following
weighted average assumptions for the fiscal years ended October 31,
2003, 2002 and 2001, respectively: expected volatility of 114% and 145%,
142% and 165%, respectively; risk free interest rate of 3.63%, 4.16% and
4.50% and 4.66%, respectively; and expected lives of 5 to 10 years.

The effects of applying SFAS No. 123, as amended, in the above pro forma
disclosures are not indicative of future amounts as they do not include
the effects of awards granted prior to Fiscal 1996.  Additionally,
future amounts are likely to be affected by the number of grants awarded
since additional awards are generally expected to be made at varying
amounts.

The pro forma net income (loss) and income (loss) per share consists of
the following:

                                              Fiscal Year Ended October 31,
                                          2 0 0 3       2 0 0 2       2 0 0 1
                                          -------       -------       -------
                                      (As Restated)

Net income as reported                    $535,533   $(2,348,005)    $243,576
Effect of stock options                    (18,443)     (242,918)      (5,297)
                                          --------   -----------     --------

Proforma net income                       $517,090   $(2,590,923)    $238,279
                                          ========   ===========     ========
Proforma diluted earnings per share       $    .19   $     (1.00)    $    .09
                                          ========   ===========     ========




                                  F - 16


<PAGE>          F-17

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
---------------------------------------------------------

Earnings (loss) per Share
-------------------------

Earnings (loss) per share for each of the fiscal years ended October 31,
2003, 2002 and 2001 was computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding and
also was adjusted for the assumed conversion of shares issuable upon the
exercise of options and warrants in accordance with SFAS No. 128,
"Earnings Per Share".  The Company had a net loss for the fiscal year
ended October 31, 2002 and, accordingly, common stock equivalents are
excluded from this computation as the effect would be anti-dilutive.

Marketing and Promotional Costs
-------------------------------

Marketing and promotional costs are expensed as incurred and aggregated
approximately $353,000, $276,000 and $253,000 from continuing operations
for the fiscal years ended October 31, 2003, 2002 and 2001,
respectively.

Shipping Costs
--------------

The Company classifies shipping costs as a component of selling
expenses.  Total shipping costs from continuing operations totaled
$72,893, $86,885 and $74,906 for the years ended October 31, 2003,
2002 and 2001, respectively.

Recently Issued Accounting Pronouncements
-----------------------------------------

In April 2003, the FASB issued Statement of Financial Accounting
Standards No. 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities ("SFAS 149").  This statement
amends and clarifies the financial reporting for certain derivative
instruments, including certain derivative instruments embedded in
other contracts.  The Company does not currently have any financial
instruments covered by this statement.

In May 2003, the FASB issued Statement of Financial Accounting
Standards No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity" ("SFAS 150") that is
applicable to financial statements issued for the first interim period
beginning after June 15, 2003.  This statement establishes standards
for the classification of certain financial instruments with
characteristics of both liabilities and equity.  The Company does not
currently have any financial instruments covered by this statement.




                                  F - 17


<PAGE>          F-18

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 2 - SALE OF NON-CORE SEGMENTS/DISCONTINUED OPERATIONS
----------------------------------------------------------

With the advent of the No Child Left Behind legislation, the Company
made the strategic decision to refocus itself in the assessment segment
of the K-12 market.

Instructional Segment
---------------------

In July 2003, the Company sold substantially all the assets of Modern
Learning Press, Inc., its wholly-owned subsidiary and the sole component
of the Company's instructional segment to Delta Education, LLC ("Delta")
for, $4,020,000 and Delta assumed certain related liabilities.  In
addition, the Company is responsible, for the payment of up to $200,000
of certain royalties for a one year period from June 1, 2003 through May
31, 2004.  The Company has estimated these royalties based on historical
amounts paid, to amount to approximately $175,000, which has reduced the
gain from the sale of the segment.  The Company retained the business
and assets related to its test preparation materials, Kingsbridge Press,
which it considers consistent with the activities of its sole remaining
segment.  The Company recorded a gain on the disposal of the
Instructional segment totaling $1,748,272 less taxes of $699,309.
Revenues from the Instructional Segment totaled $1,321,278, $2,862,927
and $2,839,008 for the period November 1, 2002 through the date of sale
and for the fiscal years ended October 31, 2002 and 2001, respectively.
In addition, the Company entered into a transitional services agreement
with Delta, whereby the Company would continue to pay the rent and
employee costs of MLP through October 31, 2003 for consideration of
$130,000.  On October 31, 2003, the facilities utilized by MLP were
closed and the employees terminated.  The Company has determined these
termination costs, to be approximately $130,000, which it has recorded
as a cost of the sale of the segment.

Delivery Segment
----------------

On June 3, 2003, the Company sold substantially all the assets of Elley.
Pursuant to the agreement, the Company received $50,000.  In addition,
the Company will receive 25 percent of the proceeds from any sale or
refinancing of the school by the purchaser to a third party, which must
take place within seven years. The assets sold constitute substantially
all the assets and operations of the Company's educational delivery
segment.  The Company recorded a loss on the disposal of Elley totaling
$974,901, and a tax benefit of $389,960, to reflect the change in the
fair value of the net assets sold during the period November 1, 2002
through June 3, 2003.  The revenues for the delivery segment were
$3,225,417, $5,882,026 and $4,966,974 for the period from November 1,
2002 through June 3, 2003, the date of sale, and the years ended October
31, 2002 and 2001, respectively.



                                  F - 18


<PAGE>          F-19

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 2 - SALE OF NON-CORE SEGMENTS/DISCONTINUED OPERATIONS (Continued)
----------------------------------------------------------

The following net asset and liability amounts of discontinued operations
pertain to October 31, 2002.


Net current assets held for sale consisted of the following:

     Cash                                                             $  233,206
     Accounts receivable                                                 214,620
     Tuition receivable                                                2,260,832
     Inventory                                                           301,977
     Note receivable                                                       9,327
     Prepaid expenses                                                    135,482
                                                                      ----------

                                                                      $3,155,444
                                                                      ==========

Net property plant and equipment held for sale                        $  184,730
                                                                      ----------

Net other assets held for sale consisted of the following:
     Notes receivable                                                 $  150,000
     Tuition receivable                                                       --
     Deferred taxes                                                      512,225
     Goodwill                                                            311,897
     Other                                                               464,536
                                                                      ----------

                                                                      $1,438,658
                                                                      ==========

Current liabilities held for sale consisted of the following:
     Lines of credit                                                  $  400,000
     Current maturities of long-term debt                                 57,540
     Current maturities of capital lease obligations                      19,738
     Accounts payable                                                    812,504
     Accrued expenses                                                    493,722
                                                                      ----------

                                                                      $1,783,504
                                                                      ==========


Other liabilities held for sale consisted of the following:
     Long-term debt, net of current portion                           $  227,053
     Long-term capitalized lease obligations,
      net of current portion                                              14,494
                                                                      ----------

                                                                      $  241,547
                                                                      ==========

                                  F - 19


<PAGE>          F-20

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
--------------------------------------


                                                   October 31,
                                         -----------------------------
                                            2 0 0 3          2 0 0 2
                                            -------          -------

Land                                      $       --      $  161,367

Building and improvements (Note 4)           200,129       2,351,722

Furniture, fixtures and equipment            390,539         346,484
                                          ----------      ----------

                                             590,668       2,859,573
Less:  accumulated depreciation              395,327       1,285,412
                                          ----------      ----------

                                          $  195,341      $1,574,161
                                          ==========      ==========


Depreciation expense for the fiscal years ended October 31, 2003, 2002
and 2001 was $82,726, $109,409 and $124,116, respectively.


NOTE 4 - SALE-LEASEBACK OF BUILDING
-----------------------------------

In July 2003, the Company sold its headquarters building to 26 Palmer
LLC for $2,875,000.  The building and related improvements had a net
book value of $1,458,481.  The Company reported a gain on the sale
totaling $1,254,383, net of closing costs totaling $162,136.  The
building was then leased back to the Company under a ten-year lease
agreement.  As a result of the sale/leaseback, the gain has been
deferred and will be recognized over the term of the lease as other
income.  Among other provisions, the lease provides for additional rent
to be paid by the Company for real estate taxes and insurance.  Future
minimum rentals under the agreement are as follows:


Year ended October 31,
----------------------
2004                            $  306,820
2005                               316,100
2006                               325,453
2007                               335,095
2008                               345,027
2009 and thereafter              1,850,248
                                ----------

                                $3,478,743
                                ==========


          Subsequent to the issuance of Company's audited financial
statements in its Form 10-KSB for the fiscal year ended October 31,
2003, the Company concluded that its treatment of the gain from the
sale-leaseback transaction was not consistent with generally accepted
accounting principles.  The Company concluded that it was necessary to
restate such financial statements.  The restatement does not affect
previously-reported revenues for the restated period or future periods.


                                  F - 20


<PAGE>          F-21

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 4 - SALE-LEASEBACK OF BUILDING (Continued)
-----------------------------------



          A summary of the significant effects of the restatement is as
follows:


                                                 As Previously      As Restated
                                                   Reported

As of October 31, 2003:
-----------------------

Deferred income taxes (non current)              $ 1,107,857       $ 1,605,011
Deferred gain on sale of building
  (current)                                               --           125,439
Deferred gain on sale of building
  (net of current)                                        --         1,087,131
Retained earnings (deficit)                          268,474          (446,942)



For the Fiscal Year Ended October 31, 2003
------------------------------------------

Gain on sale of building                         $ 1,254,383       $    41,813
Income before income taxes                         1,894,425           681,855
Income taxes                                         823,694           326,540
Income from continuing operations                  1,070,731           355,315
Net income                                         1,250,949           535,533
Earnings per common share
  Basic                                                  .48               .21
  Diluted                                                .47               .20
  Basic - continuing operations                  $      0.41       $      0.14
  Diluted - continuing operations                $      0.40       $      0.13




                                  F - 21


<PAGE>          F-22


                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 - TEST PASSAGE BANK AND TEST DEVELOPMENT
-----------------------------------------------

The test passage bank is principally comprised of payroll and payroll-
related costs as well as freelance consulting costs expended in the
development of test passages which are used in the creation of the
Company's tests.  The process of writing and calibrating a test passage
takes approximately two years, and all costs associated with the process
are capitalized during this period. Amortization of these costs begins
once the development period has elapsed, which in most cases, represents
the point in time at which the new test passage is placed into the test
passage bank and becomes available to be utilized within the Company's
existing tests, or the point in time at which a newly developed test
becomes available for sale.  Costs capitalized in connection with the
development of passages used in the Company's Degrees of Reading Power
Test ("DRP") have been estimated to have a useful life of eleven years
and, accordingly, are being amortized over an eleven-year period.  The
amortization costs recognized in each period are included in cost of
goods sold.  Costs capitalized in connection with the development of
passages used in all other of the Company's tests have been estimated to
have a useful life of seven years and, accordingly, are being amortized
over a seven-year period.


NOTE 6 - LINES OF CREDIT
------------------------

The Company obtained a line of credit totaling $1,000,000 from a bank.
Borrowings under the line of credit accrue interest at the bank's prime
rate plus one percent (1.0%) per annum and the line, as amended, expires
on April 1, 2004.  The line is collateralized by the Company's accounts
receivable and inventory and contains various financial covenants
pertaining to the maintenance of working capital and debt service
coverage.  As of October 31, 2003, the Company was in compliance with
all such covenants.  There were no outstanding borrowings under this
line as of October 31, 2003 and 2002.


NOTE 7- MORTGAGE PAYABLE
------------------------

In August 1997, the Company remortgaged its facilities for $1,800,000.
Borrowings on the mortgage incurred interest at the rate of 8 1/8% per
annum.  The mortgage was to be repaid through equal monthly installments
with a balloon payment due in Fiscal 2007.  Proceeds from this
remortgaging were used to retire all prior mortgages held on the
facilities and certain short-term debt associated with the acquisition
of MLP.  The mortgage was prepaid in July 2003 upon the sale-leaseback
of the facilities (see Note 4).


                                  F - 22


<PAGE>          F-23


                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - LONG-TERM DEBT
-----------------------

Long-term debt consists of the following:


                                                                October 31,
Description                Interest Rate      Due Date       2003        2002
-----------                -------------      --------       ----        ----

Secured mortgage              8 1/8%           2007      $      --    $1,585,700
payable to bank in
monthly installments
of $15,196 including
interest (Note 7)


Equipment loan            Prime + 1%           2008         38,000            --
payable in monthly                                       ---------    ----------
installments of
$633 plus interest

                                                            38,000     1,585,700


Less:  current maturities                                    7,600        55,556
                                                         ---------    ----------


                                                           $30,400    $1,530,144
                                                         =========    ==========

Long-term debt matures as follows:

Fiscal year ended October 31,
        2004                   $  7,600
        2005                      7,600
        2006                      7,600
        2007                      7,600
        2008                      7,600
                               --------
                               $ 38,000
                               ========


NOTE 9 - SUBORDINATED DEBENTURE AGREEMENT
-----------------------------------------

In October 1998, the Company issued debentures to Cahill Warnock
Strategic Partners Fund L.P. ("CWSPF") and Strategic Associates, L.P.
("SA") for an aggregate of $4,000,000 pursuant to a Securities
Purchase Agreement entered into among the parties in September 1998.
Interest pursuant to the debentures was incurred at an annual rate of
eight percent (8%) and was payable quarterly. The debentures, which
were originally due in October 2003, contain provisions for the
prepayment of the loan's principal.  Additionally, the agreement
called for the issuance of warrants to acquire an aggregate of 690,230
shares of the Company's common stock at $1.25 per share.  These
warrants are exercisable for a five year period from designated start
dates as set forth in the agreement.  In December 1999, pursuant to an
agreement among the Company, CWSPF and SA, the exercise price of the
warrants was amended to be $1.125 per share.  On October 31, 2003,
there were warrants outstanding to purchase 138,047 shares of the
Company's common stock.  The agreement called for certain restrictive
covenants, with which the Company was in compliance at October 31,
2003.  In September 2002, the due date of the debentures was extended
to February 1, 2004.  In July 2003, the remaining principal balance
due on the debentures was repaid.


                                  F - 23


<PAGE>          F-24

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 10 - RETIREMENT PLANS
--------------------------

The Company has a qualified 401(k) Profit Sharing Plan, as amended,
under which eligible employees who are eighteen years of age and have
completed either twelve months or one thousand hours of employment
become participants.  The Plan provides a matching component under the
401 (k) Profit Sharing Plan of up to five percent (5%) of each eligible
employee's compensation.

Net assets for the Profit Sharing Plan, as estimated by the
Massachusetts Mutual Life Insurance Company, which maintains the plan's
records, were $2,341,940 and $1,735,127 at October 31, 2003 and 2002,
respectively.

The Company has a Money Purchase Pension Plan, as amended, under which
eligible employees who are eighteen years of age and have completed
either twelve months or one thousand hours of employment become
participants.  The Plan excludes highly compensated employees and
provides for annual contributions of five percent (5%) of each eligible
employee's compensation.

Net assets for the Money Purchase Pension Plan, as estimated by the
Massachusetts Mutual Life Insurance Company, which maintains the plan's
records, were $1,191,537 and $940,550 at October 31, 2003 and 2002,
respectively.

For the fiscal years ended October 31, 2003, 2002 and 2001, retirement
plan costs aggregated $198,000, $142,000 and $146,000, respectively.



                                  F - 24


<PAGE>          F-25

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 11 - STOCKHOLDERS' EQUITY
------------------------------

Preferred Stock
---------------

The Company is authorized to issue 5,000,000 shares of $.0001 par value
preferred stock. The stock may be issued by the Board of Directors of
the Company in one or more series and with such preferences, conversion
or other rights, voting powers and other provisions as may be fixed by
the Board of Directors in the resolution authorizing their issuance
without any further action of the stockholders.

Stock Issued for Bonuses
------------------------

In January 2002, the Company paid approximately $16,000 of bonuses due
to certain officers for the year ended October 31, 2001 through the
issuance of 35,000 shares of restricted common stock.

Amended and Restated 1991 Stock Option Incentive Plan
-----------------------------------------------------

The Company has adopted an Amended and Restated 1991 Stock Option
Incentive Plan (the "1991 Plan") whereby options to purchase up to an
aggregate of 625,000 shares of common stock, may be granted to officers,
key employees, directors, and consultants of the Company. Subject to the
terms of the 1991 Plan, the Board of Directors is authorized to select
optionees and determine the number of shares covered by each option, its
exercise price and certain of its other terms.  No one participant may
receive an award in excess of 50,000 shares in any one fiscal year.  All
options are 100% vested after twelve months and may be exercised for a
nine-year period commencing one year from the date of the grant.  The
exercise price of an option granted under the Plan may not be less than
the fair market value of the Company's common stock on the date of the
grant.


                                  F - 25


<PAGE>          F-26

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




NOTE 11 - STOCKHOLDERS' EQUITY (Continued)
------------------------------

Amended and Restated 1991 Stock Option Incentive Plan (continued)
-----------------------------------------------------

1991 Plan activity is summarized as follows:


                                                       Option Price
                                             Shares    Per Share
                                             ------    ---------

Options outstanding - October 31, 2001      475,288    $1.668 - $11.00
  Granted                                        --          --
  Cancelled                                  (4,500)       $1.668
  Exercised                                      --          --
                                            -------


Options outstanding - October 31, 2002      470,788    $1.668 - $11.00
  Granted                                        --          --
  Canceled                                  (57,000)   $1.668 - $11.00
  Exercised                                      --          --
                                            -------


Options outstanding - October 31, 2003      413,788    $1.668 - $10.50
                                            =======


Options exercisable - October 31, 2003      413,788
                                            =======







                                  F - 26


<PAGE>          F-27

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 11 - STOCKHOLDERS' EQUITY (Continued)
------------------------------

2000 Stock Incentive Plan
-------------------------

In February of Fiscal 2000, the Company adopted the 2000 Stock
Incentive Plan (the "2000 Plan") which supercedes the 1991 Plan.
Options outstanding under the 1991 Plan at October 31, 2000 will remain
effective until forfeited, cancelled, or expired without exercise. The
2000 Plan calls for options to purchase up to an aggregate of an
additional 300,000 shares of the Company's common stock plus such
additional shares as becomes available under the 1991 Plan by reason of
forfeiture of awards granted thereunder or cancellation or expiration
of such shares without exercise, and may be granted to officers, key
employees, directors, and consultants of the Company.  Subject to the
terms of the 2000 Plan, the Board of Directors is authorized to select
optionees and determine the number of shares covered by each option,
its exercise price and certain of its other terms.  No one participant
may receive an award in excess of 150,000 shares in any three fiscal-
year period.  All options are 100% vested after twelve months and may
be exercised for a nine-year period commencing one year from the date
of grant.  The exercise price of an option granted under the 2000 Plan
may not be less than the fair market value of the Company's common
stock on the date of grant.

Options outstanding - November 1, 2001            --           --
  Granted                                     79,800         $0.46
  Canceled                                        --           --
  Exercised                                       --           --
                                             -------


Options outstanding - October 31, 2002        79,800         $0.46
  Granted                                     39,500         $0.65
  Canceled                                      (500)        $0.46
  Exercised                                   (9,000)        $0.46
                                             -------


Options outstanding - October 31, 2003       109,800     $0.46 - $0.65
                                             =======


Options exercisable - October 31, 2003        70,300         $0.46
                                             =======


Directors Stock Option Plan
---------------------------

In 1996, the Company adopted a Directors Stock Option Plan (the "DSO
Plan") whereby options may be granted to purchase up to an aggregate of
25,000 shares of the Company's common stock to directors of the Company
who are not officers or employees of the Company or otherwise eligible
to receive awards under the 1991 Plan.  Pursuant to the DSO Plan,
eligible directors would receive an option to purchase 1,250 shares of
the Company's common stock on the date the director first becomes
eligible.  The eligible director would subsequently receive an option to
purchase 625 shares of the Company's common stock on the date of each
succeeding annual meeting of the stockholders, unless the director's
term ends on or before that date.  Each option granted is exercisable at
the fair market value of the Company's common stock on the date granted,
and may be exercised for a nine-year period commencing one year from the
date of the grant.


                                  F - 27


<PAGE>          F-28

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 11 - STOCKHOLDERS' EQUITY (Continued)
------------------------------

Directors Stock Option Plan (continued)
---------------------------

In February 2000, the Company adopted an amendment to the DSO Plan
increasing the number of options, which may be granted under the DSO
Plan, to an aggregate of 75,000 shares.  The amendment also increased
the number of shares of the Company's common stock to be subject to the
automatic grants made to directors from 1,250 shares to 5,000 shares
upon first being elected to the Board of Directors of the Company and
625 shares to 2,500 shares upon each re-election to the Board of
Directors.

Directors' stock option plan activity is summarized as follows:


                                                       Option Price
                                             Shares    Per Share
                                             ------    ---------

Options outstanding - October 31, 2001       34,375    $1.50 - $7.85
  Granted                                    12,500        $1.00
  Canceled                                       --          --
  Exercised                                      --          --
                                             ------


Options outstanding - October 31, 2002       46,875    $0.62 - $7.85
  Granted                                    10,000    $0.70
  Canceled                                       --          --
  Exercised                                      --          --
                                             ------


Options outstanding - October 31, 2003       56,875    $0.62 - $7.85
                                             ======


Options exercisable - October 31, 2003       46,375    $0.62 - $7.85
                                             ======




Consultants Stock Incentive Plan
--------------------------------

The Company has adopted a Consultants Stock Incentive Plan (the "CSI
Plan") whereby options to purchase up to 50,000 shares of the Company's
common stock may be granted to consultants or advisors of the Company.
Subject to the terms of the CSI Plan, a committee of the Board of
Directors is authorized to select participants and determine the number
of shares covered by each option, its exercise price and other terms.
The exercise price, however, may not be less than the fair market value
of the Company's common stock on the date of the grant.



                                  F - 28


<PAGE>          F-29


                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - STOCKHOLDERS' EQUITY (Continued)
------------------------------

Consultants Stock Incentive Plan (continued)
--------------------------------



                                                              Option Price
                                                    Shares    Per Share
                                                    ------    ---------


Options outstanding - October 31, 2001                  --        --
  Granted                                            7,500       $.90
  Canceled                                              --        --
  Exercised                                             --        --
                                                     -----


Options outstanding - October 31, 2003 and 2002      7,500       $.90
                                                     =====

Options exercisable - October 31, 2003               7,500       $.90
                                                     =====





NOTE  12 - INCOME TAXES
-----------------------

Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes using the enacted tax rates in effect in the years in which the
differences are expected to reverse.  Deferred income tax liabilities
and assets are comprised as follows:




                                                           October 31,
                                                   --------------------------
                                                    2 0 0 3          2 0 0 2
                                                    -------          -------
                                                 (As Restated)
    Deferred tax assets:
      Goodwill                                   $    1,368       $   11,650
      Net operating loss                          1,321,138        1,842,891
      Sale/leaseback of building                    497,154               --
      Salaries                                       63,327               --
      Bad debt allowance                              2,788           29,039
      Other                                          12,811           14,652
                                                 ----------       ----------

      Gross deferred tax assets                   1,898,586        1,898,232
                                                 ----------       ----------


    Deferred tax liability:
      Test passage bank and test development        (37,558)         (22,562)
                                                 ----------       ----------

      Gross deferred tax liability                  (37,558)         (22,562)
                                                 ----------       ----------

    Net deferred tax assets                      $1,861,028       $1,875,670
                                                 ==========       ==========



The Company believes it is more likely than not that this net deferred
tax asset will be realized in future periods and, accordingly, no
valuation allowance has been recorded.


                                  F - 29


<PAGE>          F-30

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 12 - INCOME TAXES (Continued)
----------------------

The Company's income tax expense from continuing operations consists of the
following:


<TABLE>
<CAPTION>
                                                 Fiscal Year Ended October 31,
                                          ----------------------------------------
                                           2 0 0 3        2 0 0 2         2 0 0 1
                                           -------        -------         -------
                                        (As Restated)
<S>                                   <C>           <C>             <C>
  Current:
    Federal                               $     --      $      --       $(119,521)
    State                                   73,781          4,563          69,001
                                          --------      ---------       ---------

                                            73,781          4,563         (50,520)
                                          --------      ---------       ---------
Deferred:
   Federal                                 195,888         63,797         198,512
   State                                    56,871         18,522          55,990
                                          --------      ---------       ---------

                                           252,759         82,319         254,502
                                          --------      ---------       ---------

Provision for income taxes                $326,540      $  86,882       $ 203,982
                                          ========      =========       =========

</TABLE>


A reconciliation of the difference between the expected income tax rate
using the statutory Federal tax rate and the Company's effective rate for
continuing operations is as follows:


<TABLE>
<CAPTION>
                                                 Fiscal Year Ended October 31,
                                           2 0 0 3        2 0 0 2         2 0 0 1
                                           -------        -------         -------
                                        (As Restated)
<S>                                   <C>           <C>             <C>

U.S. Federal income tax statutory rate       34%            34%             34%

State income tax, net of Federal
 income tax benefit                           7              7               7

Other - including tax free
income, goodwill and net
operating losses                              7             --              (6)

Effective tax rate                           48%            41%             35%
                                             ==             ==              ==
</TABLE>






                                  F - 30


<PAGE>          F-31

                 TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
                              AND SUBSIDIARIES

                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 13 - EMPLOYMENT AGREEMENTS
-------------------------------

The Company has employment agreements with several of its key employees.
The agreements are for varying terms ranging from one to three years and
are automatically extended each year unless the Company notifies the
employee, in writing, ranging from at least 60 to 180 days prior to the
anniversary date, that the agreement will not be extended.

Each agreement calls for a base salary, which may be adjusted annually
at the discretion of the Company's Board of Directors, and also provides
for eligibility in the Company's benefit plans and incentive bonuses
which are payable based upon the attainment of certain profitability
goals.  Among other provisions, the agreements include a non-compete
clause for varying periods not exceeding three years following
termination of employment.

The aggregate commitment for future salaries as of October 31, 2003,
excluding bonuses and benefits, is as follows:

Fiscal year ending October 31,

         2004               $  863,759
         2005                  494,244
         2006                  484,923
         2007                  136,383
                            ----------
                            $1,979,309
                            ==========




                                  F - 31

<PAGE>

                              SIGNATURES


        In accordance with Section 13 or 15(d) of the Exchange
Act, the registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                            TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.

August 8, 2005             By:  /s/ ANDREW L. SIMON
                               ----------------------------------------
                             Andrew L. Simon
                             President and Chief Executive
                             Officer (principal executive officer and
                             principal financial officer)


            In accordance with the Exchange Act, this report has
been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

     Signature                        Title                   Date
     ---------                        -----                   ----

/s/ ANDREW L. SIMON            Director and Chairman      August 8, 2005
-------------------------
    Andrew L. Simon                of the Board

/s/ MICHAEL D. BECK                  Director             August 8, 2005
-------------------------
    Michael D. Beck

/s/ STEVEN R. BERGER                 Director             August 8, 2005
-------------------------
    Steven R. Berger

/s/ DONALD W. HUGHES                 Director             August 8, 2005
-------------------------
    Donald W. Hughes


-------------------------            Director
    Chris L. Nguyen


/s/ LINDA G. STRALEY                 Director             August 8, 2005
-------------------------
    Linda G. Straley

/s/THOMAS STRUZZIERI                 Director             August 8, 2005
-------------------------
   Thomas Struzzieri

/s/ DAVID L. WARNOCK                 Director             August 8, 2005
-------------------------
    David L. Warnock